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To: Sonki who wrote (8122)	11/16/1997 3:13:00 PM
From: Rational	Read Replies (2) of 18056

Sonki: Maybe I can help you as I am an engineer converted to a finance person. <BG> The valuation model is based on: Value = EPS/(1+COC) + EPS(1+G)/{(1+COC)^2} + EPS(1+G)^2/{(1+COC)^3} + .... up to infinity. This value is finite (the series is summable) if and only if G < COC. Thus, G=.15 with a COC of .05 is not sustainable in the long run. Either the COC has to go up or the assumption of 15% is wrong. In short, the mathematical value will be infinity in the example you have stated. Finance people will say that a growth rate of 15% and a COC of 5% is temporary. But, for the sake of illustration, if G = 1% and COC = 5%, an EPS of $50 will give a value of 50/(.05 - .01) = $1250. Sankar

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