Question #130

Reading: Reading 20 Discounted Dividend Valuation

PDF File: Reading 20 Discounted Dividend Valuation.pdf

Page: 53

Status: Unattempted

Part of Context Group: Q129-130
Shared Context
- Calculate an equity value using the assumptions made by Karlson (to the nearest $m): A) $73m. B) $79m. C) $87m.
Question
What adjustment to his calculation method does Capes need to make in to correctly calculate PVGO?
Answer Choices:
A. The value of assets in place is given by the previous dividend multiplied by one plus the sustainable growth rate divided by the required rate of return
B. The value of assets in place is given by earnings divided by the required rate of return
C. The value of assets in place is given by earnings divided by the required rate of return minus the sustainable growth rate
Explanation
The value of assets in place is E / r. The difference between this value and the fundamental value is PVGO.
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