Year-1 Year-2 Year-3 Year-4 Year-5

2008A 2009E 2010E 2011E 2012E 2013E

EPS 3.8 3.9 4.41 4.98 5.63 6.36

DPS 0.88 0.90 1.01 1.15 1.29 1.46
BV PS 15.93 18.93 22.33 26.16 30.49 35.39

ROE 24.48% 23.28% 22.31% 21.51% 20.85%

RE(10%Charge) 2.31 2.51 2.75 3.01 3.31
PV Factor @ Discount Rate (1.10)' 1.10 1.21 1.331 1.464 1.611
Present Value of RE 2.097 2.077 2.064 2.057 2.054
Total PV to 2013 10.350
Continuing Value (CV) 58.24
Present Value of CV 36.15
Value per share 62.431

The continuing value based on GDP growth rate:

CV = 3.31x1.04 = 58.24 P/B= 3.919106

1.10-1.04
Growth rate= 13%
1.13 1.13 1.13
Pay out = 0.231579 around 23%

RE Growth Rate
1.089597 1.092919
Implicit Growth Rate =4.5%
See the slide no. 24

ROE = EPS1/BV0
Dell Inc. Forecast Year
2000 2001 2002 2003 2004 2005 Expected that RE will grow
EPS 0.84 0.48 0.82 1.03 1.18
DPS 0 0 0 0 0
BPS 2.06 2.9 3.38 4.2 5.23 6.41
ROCE 40.8% 16.6% 24.3% 24.5% 22.6% Expected Growth rate of RE
RE (11% charge) 0.613 0.161 0.448 0.568 0.605 1.065
Discount rate (11%) 1.110 1.232 1.368 1.518 1.685
PV of RE 0.553 0.131 0.328 0.374 0.359
Total PV of RE up to 2005 1.744
Continuing Value (CV) 14.31
PV of CV 8.49

Value per share 12.297

P/B 5.97

Target price (V) at the year 2005 = BV at 2005 + CV at 2005

6.41 + 14.32= 20.73
Expected that RE will grow at 6.5%

Expected Growth rate of RE

 Investment of Rs.100, rate of return =5%
Case-1 Earnings withdrawn each year
2008 2009 2010 2011 2012 2013
Earn 5 5 5 5 5
pay out 5 5 5 5 5
BV 100 100 100 100 100 100
RE 0 0 0 0 0
Earn Growth rate 0 0 0 0 0
Cum-div-Earn 5 5.25 5.51 5.79 6.08
Cum-div-Earn Growth rate 5% 5% 5% 5%

Case 2: No withdrawals (Zero Pay out)

Earn 5 5.25 5.51 5.79 6.08

pay out 0 0 0 0 0
BV 100 105 110.25 115.76 121.55 127.63
RE 0.0 0.0 0.0 0.0 0.0
Earn Growth rate 5% 5% 5% 5%
Cum-div-Earn 5 5.25 5.51 5.79 6.08
Cum-div-Earn Growth rate 5% 5% 5% 5%
Dell Inc. Forecast Year
2000 2001 2002 2003 2004 2005 2006
EPS 0.84 0.48 0.82 1.03 1.18 1.35
DPS 0 0 0 0 0 0
BPS 2.06 2.9 3.38 4.2 5.23 6.41 7.76
ROCE 40.8% 16.6% 24.3% 24.5% 22.6% 21.1%
RE (11% charge) 0.613 0.161 0.448 0.568 0.605 0.645
Change in RE -0.452 0.287 0.120 0.037 0.040
Discount rate (11%) 1.110 1.232 1.368 1.518 1.685
PV of Change in RE -0.40757 0.233098 0.087597 0.024175 0.02386
Sum of PV of
Change in RE -0.03884
CV 0.86857
PV of CV 0.515452
Value at 2000 1.316611
Discount rate (11%) 0.11
Value at the year 2000 11.96919
Rather than anchoring on BV, anchor on the forward earnings of 0.84 per share.
Earnings are just the change in in BV (before Div), so correspondingly add to
this anchor by forecasting the subsequent change in RE
Case 2 Dell, Inc.
In this case, abnormal earnings are expected to grow at a 6.5 percent after 2005. Required rate of return is 11 percent.

Forecast Year
2000 2001 2002 2003 2004
DPS 0.00 0.00 0.00 0.00 0.00
EPS 0.84 0.48 0.82 1.03
DPS reinvested (0.11 * DPSt-1) 0.00 0.00 0.00 0.00
Cum-dividend earnings= eps+dps reinvested 0.84 0.48 0.82 1.03
Normal earnings (1.11 x EPS t-1) 0.932 0.533 0.910
Abnormal earnings growth = Cum-Div Earn-Normal Earn -0.452 0.287 0.120
Discount rate (1.11t) 1.11 1.2321 1.367631
Present Value of AEG -0.40757 0.233098 0.087597
Total value of AEG -0.0627
Continuing Value (CV)
PV of CV 0.575072
Total earnings to be capitalized 1.352375
Capitalization rate 0.11

Value per share (1.354/0.11) 12.29432

P/E 14.6
The continuing value calculation:

CV= 0.0393 =0.873

1.11-1.065

Present Value of CV = 0.873 = 0.576

1.5181
e of return is 11 percent.

ast Year
2005 2006
0.00 0.00
1.18 1.35
0.00 0.00
1.18 1.349
1.143 1.310
0.037 0.039
1.51807
0.024175

0.873
Forecast Year
1999 2000 2001 2002 2003 2004
DPS 0.57 0.66 0.73 0.77 0.82
EPS 1.29 1.38 1.42 1.5 1.6
DPS reinvested (0.10*DPS_t-1 0.057 0.066 0.073 0.077
Cum-Div-Earnings
(EPS+DPS Reinvested 1.437 1.486 1.573 1.677
Normal Earnings (1.10*EPS_t-1) 1.419 1.518 1.562 1.65
Abnormal Earnings Growth (AEG) 0.018 -0.032 0.011 0.027
Discount Rate (1.10) 1.1 1.21 1.331 1.464
PV of AEG 0.0164 -0.0264 0.0083 0.0184
Total PV of AEG 0.0166
Total earnings to be capitalized 1.3066
Capitalization rate 0.1
Value per share 13.066
Price -Earning ratio (P/E) 10.12887
Forecasted
Forecasted

Abnormal Earnings Growth = Cumdividend Earn-Normal Earn

Forecast Year 2007A 2008E 2009E 2010E 2011E 2012E
DPS 0 0 0 0 0
EPS 19.61 25.1008 32.12902 41.12515 52.64019
DPS reinvested (0.12*DPS_t-1 0 0 0 0
Cum-Div-Earnings 25.1008 32.12902 41.12515 52.64019
(EPS+DPS Reinvested
Normal Earnings (1.12*EPS_t-1) 21.9632 28.1129 35.98451 46.06017
Abnormal Earnings Growth (AEG) 3.1376 4.016128 5.140644 6.580024
Discount Rate (1.12) 1.12 1.254 1.405 1.574
PV of AEG 2.801429 3.202654 3.658821 4.180447
Total PV of AEG 13.84335
Continuing Value (CV) 85.54031
PV of CV 54.34582
Total earnings to be capitalized 87.79917
Capitalization rate 0.12
Value per share 731.6597

Price Earning Ratio 37.31054

 EPS growth rate of 28%
Discount rate is 12%

Assume growth rate of 4%