Growth Effect

PEG Ratios, Expected Growth and Interest Rates

3.00

2.50

PEG Ratio

2.00

r=6%
r=8%

1.50

r=10%

1.00

0.50

0.00

5%

10%

15%

20%

25%

30%

Expected Growth Rate

Page 1

35%

40%

45%

50%

Risk Effect

PEG Ratios and Beta: Different Growth Rates

3.5

PEG Ratio

2.5

g =25%
g=20%
g=15%

g=8%

1.5

0.5

0
0.75

1.00

1.25

1.50
Beta

Page 2

1.75

2.00

retention

PEG Ratios and Retention Ratios

1.6

1.4

1.2

PEG Ratio

PEG

0.8

0.6

0.4

0.2

0.8

0.6

0.4
Retention Ratio

Page 3

0.2

Inputs

Inputs
High Growth Stable Growth
Exp Growth
15%
8%
Payout RAtio
100%
50%
Beta
1
1
Cost of Equity
0.115
0.115
Growth Period
5
PE Ratio
23.50
Output
PEG Ratio
1.57
Expected Growth
r=4%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Beta

6.01
3.78
3.14
2.91
2.85
2.89
2.99
3.13
3.31
3.53

g =25%
0.75
1.00
1.25
1.50
1.75
2.00

Retention RatioPEG
1
0.8
0.6
0.4
0.2
0

r=6%
2.45
1.54
1.27
1.18
1.15
1.16
1.20
1.26
1.33
1.41

r=8%
1.49
0.93
0.77
0.71
0.69
0.7
0.72
0.75
0.79
0.84

g=20%
1.97
1.15
0.79
0.59
0.47
0.38

r=10%

g=15%
2.02
1.18
0.81
0.61
0.48
0.39

1.05
0.65
0.54
0.49
0.48
0.48
0.5
0.52
0.55
0.58
g=8%

2.18
1.27
0.88
0.66
0.53
0.43

PE Ratio
Expected Growth
r=4%
0.05
30.05
0.10
37.8
0.15
47.1
0.20
58.2
0.25
71.25
0.30
86.7
0.35
104.65
0.40
125.2
0.45
148.95
0.50
176.5
Beta

3
1.76
1.22
0.92
0.73
0.6

g=25%
0.75
1.00
1.25
1.50
1.75
2.00

49.25
28.75
19.75
14.75
11.75
9.5

Length of Highg=25%
Growth Period
0
15.43
1
17.52
2
19.87
3
22.5
4
25.44
5
28.75
6
32.45
7
36.61
8
41.26
9
46.48
10
52.34

1.09
1.15
1.21
1.26
1.32
1.38

Payout Ratio g=25%

0%
27.25
20%
28.75
40%
30.25
60%
31.5

Page 4

Inputs

80%
100%

Page 5

33
34.5

Inputs

r=6%

r=8%
12.25
15.4
19.05
23.6
28.75
34.8
42
50.4
59.85
70.5

g=20%

r=10%
7.45
9.3
11.55
14.2
17.25
21
25.2
30
35.55
42

g=15%
40.4
23.6
16.2
12.2
9.6
7.8

g=20%

g=8%
32.7
19.05
13.2
9.9
7.95
6.45

g=15%
15.43
16.82
18.32
19.93
21.66
23.53
25.54
27.7
30.03
32.53
35.23

g=20%

24
14.08
9.76
7.36
5.84
4.8
g=10%

15.43
16.12
16.83
17.57
18.32
19.11
19.91
20.74
21.6
22.48
23.4

g=15%
22.28
23.53
24.78
26.04

5.25
6.5
8.1
9.8
12
14.4
17.5
20.8
24.75
29

15.43
15.43
15.42
15.41
15.4
15.39
15.38
15.36
15.35
15.34
15.33

g=10%
18.01
19.11
20.2
21.3

14.42
15.38
16.34
17.3

Page 6

Inputs

27.29
28.54

22.4
23.5

18.26
19.22

Page 7