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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (886)	4/7/1999 9:53:00 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 2794

Henry, >>Interesting analysis Wayne, let me think about it for awhile. What type of return on equity were you using for the S&P? << I forget the exact bond yield that prevailed at the time but I used several S&P500 earnings growth assumptions. It ranged from 4.5% - 6.5%. Those estimates come from assumptions on the growth in nominal GDP (3% real 1.5% inflation) to the longer term peak to peak average (including this cycle) of the S&P500. I refrained from using return on equity because the S&P500 is earning about 20% on equity right now and I believe it to be impossible for those companies to reinvest all retained money at that rate over the long haul. They will instead buy in shares (at a much lower return on capital) or buy other businesses at a premium. So I assumed share repurchases for a portion of the free cash. It wasn't science. I was just getting a feel for where we are. I do this type of analysis (as well as many others) for every equity purchase I make. Wayne