3 Proponentsofthemodelwouldarguethatusingasteady
statepayoutratioforfirmsthatpaylittleornodividendsis
likely to cause only small errors in the valuation.
4 The definition of a very high growth rate is largely
subjective.Asaruleofthumb,growthratesover 25 percent
wouldqualifyasveryhighwhenthestablegrowthrateis 6 to
8 percent.
5 ThecountryriskpremiumforIndiaiscomputedusingthe
default spread forIndian bondsand relative equitymarket
volatility; the approach was described in Chapter 2. The
defaultspreadforIndiaatthetimeofthisvaluationwas1.5
percent and the standard deviation for Indian equity was
approximately twice the standard deviation in the Indian
governmentbond.Theresultingcountryequityriskpremium
is 3 percent (1.5% × 2).
6 Thisis truefor any firmwhoseprimaryasset is human
capital. Accounting conventions have generally treated
expenditures onhumancapital(training,recruiting,etc.) as
operatingexpenditures.Workingcapitalismeaninglessfora
bank, atleast inits conventionalform,sincecurrent assets
and liabilities comprise much of what is on the balance sheet.
7 Wecomputedtheaverageofthenetcapitalexpenditures
eachyearforthepastfiveyearsanddividedthisnumberby
theaverageoperating incomeoverthepast fiveyears. The
resultingratio of11.83percent wasthenmultiplied bythe
currentyear’soperatingincomeof$35.872billiontoarriveat
thenormalizednetcapitalexpenditureforthecurrentyearof
$4,243million.Toestimatethenormalizednoncashworking
capitalchange,wefirstcomputednoncashworkingcapitalas