P/E math clarification
I was going through this nice discussion paper, and it gives an example on p6 where different P/E values are derived based on NOPAT growth rate, ROIIC, and cost of capital (cost of equity, to be precise and for simplification).
I wonder how they calculate the P/E values in this example. It seems they use a two-stage DCF model based on the assumptions on p5, but the summary of results on p6 gives the impression that they use some sort of value creation formula (Mckinsey). If the latter, how do they deal with the negative denominator that results from growth rate being higher than cost of capital?
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