Outside Estimate

Outside estimate of earnings growth 9.00%

Historical growth
Enter EPS from 5 years ago $1.51

Fundamental Growth
Current EPS $2.15
Current Dividend/Share $1.12
Book value of equity $11.01
The following will be inputs for the calculation of fundamental growth
ROE 19.53%
Retention ratio 47.91%

Growth Rate Weight

Outside estimate = 9.00% 0.4
Historical growth = 7.32% 0.3
Fundamental growth = 9.36% 0.3
Weighted Average = 8.60%

Cost of Equity
The cost of equity or discount rate is computed using the Capital Asset Pricing Model
Risk free rate = 4.56%
Market premium = 5.30%
Beta of the stock = 1.1

Discount Rate = 10.39%

DDM
 Three Stage Dividend Discount Model
Company Name Corning

Current EPS = $2.15 Length of growth stage (no more than 10 years) = 5
Current Dividends/Share = $1.12 High growth rate = 8.60%
Discount Rate = 10.39% Length of transitional growth stage (no more than 10 years) = 5
Payout ratio in stable phase 50.00% Stable growth rate = 6.00%

High Growth Phase

Year 1 2 3 4 5
Growth Rate 8.60% 8.60% 8.60% 8.60% 8.60%
EPS $2.33 $2.54 $2.75 $2.99 $3.25
Payout Ratio 52.09% 52.09% 52.09% 52.09% 52.09%
Dividends/Share $1.22 $1.32 $1.43 $1.56 $1.69
Present Value $1.10 $1.08 $1.07 $1.05 $1.03

Transitional Growth Phase

Year 6 7 8 9 10
Growth Rate 8.08% 7.56% 7.04% 6.52% 6.00% 0.00% 0.00% 0.00% 0.00% 0.00%
EPS $3.51 $3.78 $4.04 $4.31 $4.56
Payout Ratio 51.67% 51.34% 51.07% 50.86% 50.69%
Dividends/Share $1.81 $1.94 $2.06 $2.19 $2.31
Present Value $1.00 $0.97 $0.94 $0.90 $0.86

Price at the end of high growth stage = $55.10

Present value of dividends in high growth phase = $5.33
Present value of dividends in transitional growth phase = $4.67
Present value of terminal phase = $20.51
Intrinsic Value = $30.51
Outside Estimate
Outside estimate of earnings growth 16.00%

Historical growth
Enter EPS from 5 years ago $0.33

Fundamental Growth
Current EPS $1.12
Current Dividend/Share $0.00
Book value of equity $4.63
The following will be inputs for the calculation of fundamental growth
ROE 24.19%
Retention ratio 100.00%

Growth Rate Weight

Outside estimate = 16.00% 0.7
Historical growth = 27.69% 0.15
Fundamental growth = 24.19% 0.15
Weighted Average = 18.98%

Cost of Equity
The cost of equity or discount rate is computed using the Capital Asset Pricing Model
Risk free rate = 4.56%
Market premium = 5.30%
Beta of the stock = 1.8

Discount Rate = 14.10%

FCFE
 Three Stage Free Cash Flow to Equity
Company Name Corning
Length of high growth stage (no more than 10 years= 5
Current EPS = $1.12 High growth rate = 18.98%
Current Capital Spending/sh = $0.76 Length of transitional growth stage (no more than 10 years = 10
Current Depreciation/share = $0.36 Stable growth rate = 7.00%
Chg. Working Capital/share = $0.52 Debt Ratio = 20%
Enter the discount rate = 14.10%

High Growth Phase

Year 1 2 3 4 5
EPS $1.33 $1.59 $1.89 $2.24 $2.67
(CapEx-Depreciation)*(1-DR) $0.38 $0.45 $0.54 $0.64 $0.76
Chg. Working Capital *(1-DR) $0.49 $0.59 $0.70 $0.83 $0.99
FCFE $0.46 $0.55 $0.65 $0.78 $0.92
Present Value $0.40 $0.42 $0.44 $0.46 $0.48
Transitional Growth Phase
Year 6 7 8 9 10 11 12 13 14 15
Growth Rate 17.78% 16.59% 15.39% 14.19% 12.99% 11.79% 10.59% 9.40% 8.20% 7.00%
EPS $3.15 $3.67 $4.23 $4.83 $5.46 $6.10 $6.75 $7.38 $7.99 $8.55
(CapEx-Depreciation)*(1-DR) $0.89 $1.04 $1.20 $1.37 $1.55 $1.74 $1.92 $2.10 $2.27 $2.43
Chg. Working Capital *(1-DR) $1.15 $1.34 $1.55 $1.77 $2.00 $2.24 $2.47 $2.71 $2.93 $3.13
FCFE $1.10 $1.28 $1.48 $1.69 $1.91 $2.13 $2.36 $2.58 $2.79 $2.99
Present Value $0.50 $0.51 $0.51 $0.51 $0.51 $0.50 $0.48 $0.46 $0.44 $0.41
End-of-Life Index 0 0 0 0 0 0 0 0 0 1

FCFE in terminal year = $3.19

Price at the end of growth phase = $44.99
Present Value of FCFE in high growth phase = $2.20
Present Value of FCFE in transition phase = $4.85
Present Value of Terminal Price = $22.87
Intrinsic Value = $29.91