Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Sonki who wrote (8122)	11/16/1997 3:13:00 PM
From: Rational	Read Replies (2) \| Respond to 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