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Strategic
decisions & Working Capital (WC)
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Investment
decisions |
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Modes of diversification
: |
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Inter-Organizational relationships
: |
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Others : |
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Long-Term
Financial decisions |
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Investment
analysis and decision |
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Exptected
Return for Shareholders
The
Growth Model
The Growth Model
looks at the company internally.
Rs
=
|
EPS |
+
g
|
|
Price
of share |
g
= ROE . Retention Rate of Dividend (RR)
ROE = EPS / [Price
of share]
Example
:
|
Year
1 |
Year
2 |
Year
3 |
Annual
variation = g |
EPS |
6.25 |
6.48 |
6.73 |
+ 3.75
% |
Price
of share |
50.00 |
51.88 |
53.82 |
+ 3.75
% |
RR
: 30 % |
1.88 |
1.95 |
2.02 |
+ 3.75
% |
Dividend
: 70 % |
4.38 |
4.54 |
4.71 |
+ 3.75
% |
ROE |
12.50
% |
12.50
% |
12.50
% |
|
g |
3.75
% |
3.75
% |
3.75
% |
Rs |
16.25
% |
16.25
% |
16.25
% |
g
= 12.50 % x 0,30 = 3.75 %
"Rs" is
also called "Market Capitalisation Rate"
Other example
|
Year 1 |
Year 2 |
Year 3 |
Share price (last) €
|
45,0 |
40,83 |
28,86 |
EPS € |
2,28 |
2,40 |
2,18 |
ROE |
5,07 % |
5,88 % |
7,55 % |
Dividend per share € |
1,0 |
1,05 |
1,05 |
Retention rate of Dividend
(RR) |
56,14 % |
56,25 % |
51,83 % |
g = ROE x RR |
2,85 % |
3,31 % |
3,91 % |
Market capitalisation
rate : ROE + g |
7,92 % |
9,19 % |
11,46 % |
|
Sources :
Financial Leverage,
the CAPM and the Equity cost of capital, 1999,
Marc Bertonèche, Ph. D. in Finance from
the Northwestern University, Professor at the
Bordeaux University and at Sciences-PO Paris,
Visiting Professor at Harvard Business School
and Oxford University.
Principles of
Corporate Finance, 8th edition, Richard
A. Brealey & Stewart C. Myers, McGraw-Hill
Corporate
Finance Course, Bernard Jaquier, Professor
in Economics & Finance, Lausanne, Switzerland, 2018
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