esna Poljak, which appeared in the Australian Financial Review article ‘It's all about interest rates: Hamish Douglass’, 19 July 2019: Take a business growing at 4 per cent a year, with a cost of equity of 10 per cent based off a 5 per cent risk-free rate and a 5 per cent market risk premium: you would value that at around 16.6 times free cashflow. Now take a business growing at the same rate, with a 4 per cent risk free rate. At a 9 per cent cost of equity that would command a 20 times multiple, he says. At a 3 per cent risk-free rate, the cost of equity is 8 per cent, and the multiple is 25. Finally at 2 per cent – 'which is where the world is at the moment' – the same business would be worth around 33 times free cashflow. The 'multiples' that Hamish Douglass refers to could also be called: Select one: a. Annuity factors (=1/r*(1-1/(1+r)^T)). b. Perpetuity factors (=1/(r-g)). c. Single cash flow present value factors (=1/(1+r)^T). d. Single cash flow future value factors (=(1+r)^T).
esna Poljak, which appeared in the Australian Financial Review article ‘It's all about interest rates: Hamish Douglass’, 19 July 2019: Take a business growing at 4 per cent a year, with a cost of equity of 10 per cent based off a 5 per cent risk-free rate and a 5 per cent market risk premium: you would value that at around 16.6 times free cashflow. Now take a business growing at the same rate, with a 4 per cent risk free rate. At a 9 per cent cost of equity that would command a 20 times multiple, he says. At a 3 per cent risk-free rate, the cost of equity is 8 per cent, and the multiple is 25. Finally at 2 per cent – 'which is where the world is at the moment' – the same business would be worth around 33 times free cashflow. The 'multiples' that Hamish Douglass refers to could also be called: Select one: a. Annuity factors (=1/r*(1-1/(1+r)^T)). b. Perpetuity factors (=1/(r-g)). c. Single cash flow present value factors (=1/(1+r)^T). d. Single cash flow future value factors (=(1+r)^T).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Here's an excerpt from an interview between Magellan fund co-founder Hamish Douglass and AFR reporter Vesna Poljak, which appeared in the Australian Financial Review article ‘It's all about interest rates: Hamish Douglass’, 19 July 2019: Take a business growing at 4 per cent a year, with a cost of equity of 10 per cent based off a 5 per cent risk-free rate and a 5 per cent market risk premium: you would value that at around 16.6 times free cashflow. Now take a business growing at the same rate, with a 4 per cent risk free rate. At a 9 per cent cost of equity that would command a 20 times multiple, he says. At a 3 per cent risk-free rate, the cost of equity is 8 per cent, and the multiple is 25. Finally at 2 per cent – 'which is where the world is at the moment' – the same business would be worth around 33 times free cashflow. The 'multiples' that Hamish Douglass refers to could also be called: Select one: a. Annuity factors (=1/r*(1-1/(1+r)^T)). b. Perpetuity factors (=1/(r-g)). c. Single cash flow present value factors (=1/(1+r)^T). d. Single cash flow future value factors (=(1+r)^T).
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