Posted: February 7th, 2016

calculate terminal value based on comparables (i.e., the value at t=3) and also estimate the terminal value using the Gordon constant growth model.

I am an analysts valuing the stock of a company. I have projected earnings and dividends three years out (to t=3), and have gathered the following data and estimates :

* Required rate of return = .10
* Average dividend payout rate for mature companies in the market = .45
* Industry average ROE= .13
* E3 = $3.00 (EPS at end of t=3)
* Industry average P/E = 14.3

Based on the above information, calculate terminal value based on comparables (i.e., the value at t=3) and also estimate the terminal value using the Gordon constant growth model.