Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

stable-growthperiodvalues.Sincethecostsofequitychange
overtime,thecumulatedcostofequityisusedtocalculatethe
presentvalueofdividends.Tocomputethecumulatedcostof
equity in year 8, for instance, we do the following:

Dividingthedividendspershareinyear 8 bythisvalueyields
the present value for that year.

Theterminalpriceattheendof year 10 canbe calculated
basedontheearningspershareinyear11,thestablegrowth
rateof4%,acostofequityof11.5%,andthepayoutratioof
65.22%:

Togetthepresentvalue,wedividebythecumulatedcostof
equity in year 10 (from the table):

The components of value are:

Present value of dividends in high-growth phase Rs 31.90

Present value of dividends in transition phase 94.53

Present value of terminal price at end of transition345.99

Value of Canara Bank stock 472.42

CanaraBankwastradingatRs 215 pershareinNovember
2005,makingitsignificantlyundervalued.Here,thebiggest
note of caution to an investor should center on the