cash flow

PV1000r8n10 FV100010.08 10002.1592159

FV3000r8n5

FV CFtt r n

PV CFtt r n

1+r)

nn-1

Net Present ValueNPV NPVPVPV

I n r B

DIVtt n r Pn

(Gordon Growth Model)

g r(DIV1/P0)g

EPSgGordongEPS(Payout Ratio)DIV1/EPS1(Plowback Ratio)=1Payout Ratio

ROEEPS1/ EPS1= EPS0+ EPS0 EPS1/EPS0=1+ EPS1/EPS0=1+g =ROE 1+g = 1+ gPlowback RatioROE

Brealey and Myers P0EPS1/rPVGO PVGO 1 2NPV

Gordon Growth Model a)ROE8 b)50 c)10 1(plowback ratio)0 EPS0.08504 g0 P0DIV/r4/0.140

260 DIV/Payout RatioROE 0.400.083.20% DIV10.032501.6 gplowback ratioROE0.600.084.8% Gordon Growth Model P0DIV1/(rg)1.6/0.100.048)30.77

8ROE10

3ROE > r ROE12 plowback ratio = 0 P0EPS/rROE/r 50 0.12/0.10 6/0.1060 plowback ratio=60 DIV/Payout RatioROE 0.400.124.8%

DIV10.048502.4 gplowback ratioROE0.600.127.2% Gordon Growth Model P0DIV1/(rg)2.4/0.100.072)85.71 85.716025.71PVGO PVGO25.71

4 P /EPS 0EPS/P EPS1/ P04/400.10r0.10

EPS1/P04/30.770.13 > r0.10

EPS1/P06/85.717

PVGO0EPS/Pr,0 PVGO < 0EPS/P >r,0 PVGO > 0EPS/P

EPS/PPVGO

PVGOPVGO

P0EPS1/rPVGOBubble Bubble Bubble

P0EPS1/rPVGOBubble EPS/r PVGO EPS/r PVGO