valuation

skah
ExcessReturnsModel0216.xlsx

Sheet1

EXCESS RETURNS MODEL - VALUING FINANCIAL INSTITUTION 1
(Insert Required Data in Yellow-Coded Cells Only)
$71,674.0 Book Value of Equity Invested From Balance Sheet End of Previous Full Year
$78,228.0 Book Value of Equity Invested Currently (May be Same as Above)
$8,354.0 Annual Net Income from Previous Year
10.0% Dividend Payout Ratio
1.20 Beta of Company's Stock
3.50% Risk-free Rate
5.00% Equity (Market) Excess Return Premium
9.50% Cost of Equity (Computer Calculates)
11.66% Return on Equity (Computer Calculates)
517.735 Number of Shares Outstanding
3.00% Assumed Growth Rate for Net Income After Year 5
9.50% Assumed Return on Equity After Year 5
9.50% Assumed Cost of Equity After Year 5
Year 1 2 3 4 5 6
Net Income $9,117.9 $10,074.4 $11,131.2 $12,298.8 $13,589.0
- Equity Cost $7,431.7 $8,211.2 $9,072.6 $10,024.3 $11,075.9
Excess Equity Return $1,686.24 $1,863.13 $2,058.57 $2,274.52 $2,513.12
Present Value $1,539.9 $1,553.9 $1,567.9 $1,582.1 $1,596.4
Beginning Book Value of Equity 78,228.0 86,434.1 95,501.0 105,519.1 116,588.1
Cost of Equity 9.50% 9.50% 9.50% 9.50% 9.50%
Equity Cost $7,431.7 $8,211.2 $9,072.6 $10,024.3 $11,075.9
Return on Equity 11.66% 11.66% 11.66% 11.66% 11.66%
Net Income $9,117.9 $10,074.4 $11,131.2 $12,298.8 $13,589.0
Dividend Payout Ratio 10.0% 10.0% 10.0% 10.0% 10.0%
Dividends Paid $911.8 $1,007.4 $1,113.1 $1,229.9 $1,358.9
Retained Earnings $8,206.1 $9,066.9 $10,018.1 $11,069.0 $12,230.1 $12,597.0
Terminal Value of Excess Returns $0.0
The PV of Excess Returns
Valuation Will Equal 0 if the Assumed ROE
Book Value of Equity Invested Currently $78,228.0 = or < the Assumed Cost of Equity
Present Value of Excess Return (Next 5 Years) $7,840.2
Present Value of Terminal Value of Excess Returns $0.0
Value of Equity $86,068.2
Number of Shares 517.735
Value per Share $166.24
1 This model replicates Damodaran's Excess Returns Model presented in Illustration 21-4
of Damodaran's Investment Valuation, 3rd, John Wiley & Sons (2012).