end of 2003, we estimated a return on equity of
21.88%.- Toestimatethereinvestmentrate,welookedatnet
capitalexpendituresandworkingcapitalinvestments
overthepastfiveyearsandestimatedanormalized
equity reinvestment rate of 16.98%.
7 Theexpectedgrowthrateinperpetuitycanthenbe
computed to be 3.71%:
Thevalue ofExxonMobilequity canthenbe estimated as
follows:
Adding thevalueof cash and marketable securities ($18.5
billion)tothisnumberanddividingbythenumberofshares
yields the value of equity per share:
Based on this model, ExxonMobil is only slightly
undervalued at $60 a share. There are two reasons this
valuation is more realistic than the modified dividend
discountmodelvaluation.First,thenetincomeisnormalized