Topic 02-The Firm and Its Goals

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Topic 02-The Firm and Its Goals

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Chloe Cataluna

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02-The Firm and Its Goals

02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals

GORDON GROWTH MODEL

Where:
P = Current stock price
D1= Value of the next year’s dividends
k = constant cost of equity capital for that company (rate of return)
g = constant growth rate in perpetuity expected for dividends
02-The Firm and Its Goals
02-The Firm and Its Goals

EVA = NOPAT - (Invested Capital * WACC)

Where:

 NOPAT = Net operating profit after taxes

 Invested capital = Debt + capital leases + shareholders' equity
 WACC = Weighted average cost of capital
02-The Firm and Its Goals
02-The Firm and Its Goals
02-The Firm and Its Goals

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