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Margin of Safety Investing Message

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Margin of Safety Investingmessage

  • Trustamind 2011-05-01 11:34
    Margin of Safet: Hello,
    The formula is:
    M (growth multiplier) = 1-(G/R)(R/ROC) / 1 - (G/R) (p142 of value investing),
    with: r= cost of capital, ROC = Return on capit
  • Trustamind 2011-04-18 21:43
    Hi, regarding your comments on Gannon's "What is Growth Worth?", you mentioned "an actual formula for how much one would be willing to pay for growth on top of a no-growth scenario." Do you happen to have the formula at hand? Thanks.
  • cm1750 2010-12-16 03:46
    Regarding PEP, I think it is currently worth roughly $71 so it is at a 9% discount now.

    I am using FCF/share for 2013 of $4.66 (= 84% of EPS) and applying a mid-year P/FCF of 18.2x, which is $84.66 in mid 2013.  Discounting that back 31 months at 9.5% including the 2.7% dividend (on FV) gives you $71.41.

    The 18.2x is using the perpetual growth model of 1/(r-g) where r (required equity return) is 9.5% and the perpetual FCF growth is just 4%, conservatively assuming 2% volume growth and 2% inflation and zero operating leverage.  Given its move into emerging markets, that 4% is likely conservative.
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