Cost of equity could be found using my program DVM_Versus_CAPM by either methods, the DVM ( Dividend Valuation Model ) or the CAPM ( Capital asset pricing model ). However, value of the share (Company value) could also be found using my program, if the cost of equity Ke is known, whether assuming a constant dividend where Po = D/Ke or a constant growth g where Po = Do(1+g)/Ke-g. Though, the growth rate g is estimated in two different ways, by using the extrapolating growth formula, based on the past dividend history or by applying the Gordon’s growth model (g = r x b). Projects undertaken by firms will have different risk profiles, and so is the company return required, since it reflect this risk, thus, the DVM model assumptions conflict, and yet the DVM high sensitivity to these assumptions. Nevertheless, using the CAPM (Ke = Rf + Beta(Rm - Rf), the investors will require different rates of return for different projects depending of the risk of each project. Rf is the risk free rate, ( Rm - Rf) is the average risk premium, and Beta is the systematic risk of investment. Beta of the share could be measured or obtained from the commercial information suppliers such as Datastream, and the more volatile the business the higher is Beta. My program DVM_Versus_CAPM will be of a value to ACCA’s students and also to students of Corporate Finance.
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#be upon the Messenger of Allah Mohamed Salla Allahu Aliahi Wassalam.
#Author : Fouad Teniou
#Date : 07/03/09
#version :2.6.1
"""
collections module's extras in python 2.6.1 were used in my program, DVMextrapolating
DVMgordonsModel and CAPM subclasses of namedtuple Python class provide the cost of equity
the calculation of the dividend growth g in two different ways, and the value of the company
if the cost of equity Ke is known.
I used an utility method and the try/exceptions statements to raise errors
"""
import math as m
from collections import namedtuple
class MyError:
""" Demonstrate imporper operation on negative number"""
def _negativeNumberException(self,*args):
""" Utility method to raise a negative number exception"""
for item in args:
if item <0:
raise ValueError,\
" <The value %s should be a positive number " % item
class DVMextrapolating(namedtuple('DVMextrapolating','dividend_just_paid,dividend_n_years,n,share_price,Ke'),MyError):
""" DVMeModel class inherits from tuple and MyError class """
#set __slots__ to an empty tuple keep memory requirements low
__slots__ = ()
#Pick Myerror method
_negativeNumberException =MyError._negativeNumberException
@property
def g_extrapolatingModel(self):
""" Compute g using extrapolating """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.dividend_just_paid,self.dividend_n_years,self.n)
return "%2.2f" % ((float(m.pow((self.dividend_just_paid/self.dividend_n_years),(1/float(self.n)))) -1))
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
#division by zero raises ZeroDivisionError exception
except ZeroDivisionError:
raise ZeroDivisionError, "\n<Please check and re-enter the values"
@property
def valueOfShare(self):
""" Compute the share value """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.dividend_just_paid,self.dividend_n_years,self.Ke)
return "%2.2f" % (((self.dividend_just_paid*
(1+float(self.g_extrapolatingModel)))/(self.Ke-float(self.g_extrapolatingModel))))
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
#division by zero raises ZeroDivisionError exception
except ZeroDivisionError:
raise ZeroDivisionError, "\n<Please check and re-enter the values"
@property
def costOfEquity(self):
""" Compute cost of equity using DVM Model """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.dividend_just_paid,self.share_price)
return "%2.1f" % ((((self.dividend_just_paid*
(1+float(self.g_extrapolatingModel))/self.share_price))+ float(self.g_extrapolatingModel))*100)
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
#division by zero raises ZeroDivisionError exception
except ZeroDivisionError:
raise ZeroDivisionError, "\n<Please check and re-enter the values"
def __str__(self):
""" String representation of DVMeModel"""
if self.Ke == None:
return "\n< Extrapolating Growth Model g = %s\n \
\n< Cost of equity Ke = %s \n\
\n< Market value of the share Po = %s" % \
(self.g_extrapolatingModel,(self.costOfEquity+'%'),('$'+ str(self.share_price)))
else:
return "\n< Extrapolating Growth Model g = %s\n \
\n< Cost of equity Ke = %s \n\
\n< Market value of the share Po = %s" % \
(self.g_extrapolatingModel,self.Ke,('$'+ str(self.valueOfShare)))
class DVMgordonsModel(namedtuple('DVMgordonsModel','dividend_just_paid,return_on_equity,dividend_payout,share_price,Ke'),MyError):
""" DVMgModel class inherits from tuple and MyError classes """
#set __slots__ to an empty tuple keep memory requirements low
__slots__ = ()
#Pick Myerror method
_negativeNumberException =MyError._negativeNumberException
@property
def g_gordonsModel(self):
""" Compute g using Gordons growth Model """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.return_on_equity,self.dividend_payout)
return self.return_on_equity * (1-self.dividend_payout)
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
@property
def valueOfShare(self):
""" Compute the share value """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.dividend_just_paid,self.Ke)
return "%2.2f" % (((self.dividend_just_paid*
(1+float(self.g_gordonsModel)))/(self.Ke-self.g_gordonsModel)))
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
#division by zero raises ZeroDivisionError exception
except ZeroDivisionError:
raise ZeroDivisionError, "\n<Please check and re-enter the values"
@property
def costOfEquity(self):
""" Compute cost of equity using DVM Model """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.dividend_just_paid,self.share_price)
return "%2.1f" % ((((self.dividend_just_paid*
(1+float(self.g_gordonsModel)))/(self.share_price))+ float(self.g_gordonsModel))*100 )
#Raise TypeError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
#division by zero raises ZeroDivisionError exception
except ZeroDivisionError:
raise ZeroDivisionError, "\n<Please check and re-enter the values"
def __str__(self):
""" String representation of DVMgModel"""
if self.Ke == None:
return "\n< Gordon's Growth Model g = %s\n \
\n< Cost of equity Ke = %s \n\
\n< Market value of the share Po = %s" % \
(self.g_gordonsModel,(self.costOfEquity+'%'),('$'+ str(self.share_price)))
else:
return "\n< Gordon's Growth Model g = %s\n \
\n< Cost of equity Ke = %s \n\
\n< Market value of the share Po = %s" % \
(self.g_gordonsModel,self.Ke,('$'+ str(self.valueOfShare)))
class CAPM(namedtuple('CAPM','Rf,Beta,Rm'),MyError):
""" CAPM class inherits from tuple and MyError class """
#set __slots__ to an empty tuple keep memory requirements low
__slots__ = ()
#Pick Myerror method
_negativeNumberException =MyError._negativeNumberException
@property
def Ke(self):
""" Compute cost of equity using CAPM model """
try:
#Test for negative numbers input and raise the exception
self._negativeNumberException(self.Rf,self.Beta,self.Rm)
return self.Rf + self.Beta*(self.Rm - self.Rf)
#Raise ValueError if input is not numerical
except TypeError:
print "\n<The entered value is not a number"
def __str__(self):
""" String representation of CAPM"""
return "\n< Ke = %s" % self.Ke+"%"
if __name__ == '__main__':
a = CAPM('Rf','Beta','Rm')
b = [7,0.7,17]
a = a._make(b)
print "\n"+"\4"*43
print a
print "\n"+"\4"*43
c = DVMextrapolating('dividend_just_paid','dividend_n_years','n','share_price','Ke')
d = [0.24,0.1525,4,None,a.Ke/100]
c = c._make(d)
print c
print "\n"+"\4"*43
e = DVMgordonsModel('dividend_just_paid','return_on_equity','dividend_payout','share_price','Ke')
f = [0.18,0.2,0.72,None,0.127]
e = e._make(f)
print e
print "\n"+"\4"*43
g = [0.25,0.17,7,17.50,None]
c = c._make(g)
print c
print "\n"+"\4"*43
h = [0.17,0.3,0.37,1.77,None]
e = e._make(h)
print e
print "\n"+"\4"*43
print
print c.g_extrapolatingModel
print c.costOfEquity
print e.g_gordonsModel
print e.costOfEquity
print "\n"+"\5"*43
m = [None,0.5,0.57,None,None]
e = e._make(m)
print e.g_gordonsModel
##########################################################################################
# c:\Python26>python "C:\Users\Fouad Teniou\Documents\python\DVM_Versus_CAPM7.py"
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#< Ke = 14.0%
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#< Extrapolating Growth Model g = 0.12
#< Cost of equity Ke = 0.14
#< Market value of the share Po = $13.44
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#< Gordon's Growth Model g = 0.056
#< Cost of equity Ke = 0.127
#< Market value of the share Po = $2.68
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#< Extrapolating Growth Model g = 0.06
#< Cost of equity Ke = 7.5%
#< Market value of the share Po = $17.5
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#< Gordon's Growth Model g = 0.189
#< Cost of equity Ke = 30.3%
#< Market value of the share Po = $1.77
#♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦
#0.06
#7.5
#0.189
#30.3
#♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣♣
#0.215
#c:\Python26>
##########################################################################################
#Version : Python 3.2
#import math as m
#from collections import namedtuple
#class MyError:
# """ Demonstrate imporper operation on negative number"""
# def _negativeNumberException(self,*args):
# """ Utility method to raise a negative number exception"""
#
# for item in args:
# if item <0:
#
# raise ValueError(" <The value %s should be a positive number " % item)
#
#class DVMextrapolating(namedtuple('DVMextrapolating','dividend_just_paid,dividend_n_years,n,share_price,Ke'),MyError):
# """ DVMeModel class inherits from tuple and MyError class """
#
# #set __slots__ to an empty tuple keep memory requirements low
# __slots__ = ()
#
# #Pick Myerror method
# _negativeNumberException =MyError._negativeNumberException
#
# @property
# def g_extrapolatingModel(self):
# """ Compute g using extrapolating """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.dividend_just_paid,self.dividend_n_years,self.n)
# return "%2.2f" % ((float(m.pow((self.dividend_just_paid/self.dividend_n_years),(1/float(self.n)))) -1))
#
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# #division by zero raises ZeroDivisionError exception
# except ZeroDivisionError:
# raise ZeroDivisionError("\n<Please check and re-enter the values")
#
# @property
# def valueOfShare(self):
# """ Compute the share value """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.dividend_just_paid,self.dividend_n_years,self.Ke)
# return "%2.2f" % (((self.dividend_just_paid*
# (1+float(self.g_extrapolatingModel)))/(self.Ke-float(self.g_extrapolatingModel))))
#
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# #division by zero raises ZeroDivisionError exception
# except ZeroDivisionError:
# raise ZeroDivisionError("\n<Please check and re-enter the values")
#
# @property
# def costOfEquity(self):
# """ Compute cost of equity using DVM Model """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.dividend_just_paid,self.share_price)
# return "%2.1f" % ((((self.dividend_just_paid*
# (1+float(self.g_extrapolatingModel))/self.share_price))+ float(self.g_extrapolatingModel))*100)
#
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# #division by zero raises ZeroDivisionError exception
# except ZeroDivisionError:
# raise ZeroDivisionError("\n<Please check and re-enter the values")
#
# def __str__(self):
# """ String representation of DVMeModel"""
#
# if self.Ke == None:
# return "\n< Extrapolating Growth Model g = %s\n \
# \n< Cost of equity Ke = %s \n\
# \n< Market value of the share Po = %s" % \
# (self.g_extrapolatingModel,(self.costOfEquity+'%'),('$'+ str(self.share_price)))
# else:
# return "\n< Extrapolating Growth Model g = %s\n \
# \n< Cost of equity Ke = %s \n\
# \n< Market value of the share Po = %s" % \
# (self.g_extrapolatingModel,self.Ke,('$'+ str(self.valueOfShare)))
#
#class DVMgordonsModel(namedtuple('DVMgordonsModel','dividend_just_paid,return_on_equity,dividend_payout,share_price,Ke'),MyError):
# """ DVMgModel class inherits from tuple and MyError classes """
#
# #set __slots__ to an empty tuple keep memory requirements low
# __slots__ = ()
#
# #Pick Myerror method
# _negativeNumberException =MyError._negativeNumberException
#
# @property
# def g_gordonsModel(self):
# """ Compute g using Gordons growth Model """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.return_on_equity,self.dividend_payout)
# return self.return_on_equity * (1-self.dividend_payout)
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# @property
# def valueOfShare(self):
# """ Compute the share value """
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.dividend_just_paid,self.Ke)
# return "%2.2f" % (((self.dividend_just_paid*
# (1+float(self.g_gordonsModel)))/(self.Ke-self.g_gordonsModel)))
#
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# #division by zero raises ZeroDivisionError exception
# except ZeroDivisionError:
# raise ZeroDivisionError("\n<Please check and re-enter the values")
#
# @property
# def costOfEquity(self):
# """ Compute cost of equity using DVM Model """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.dividend_just_paid,self.share_price)
# return "%2.1f" % ((((self.dividend_just_paid*
# (1+float(self.g_gordonsModel)))/(self.share_price))+ float(self.g_gordonsModel))*100 )
#
# #Raise TypeError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# #division by zero raises ZeroDivisionError exception
# except ZeroDivisionError:
# raise ZeroDivisionError("\n<Please check and re-enter the values")
#
# def __str__(self):
# """ String representation of DVMgModel"""
#
# if self.Ke == None:
#
# return "\n< Gordon's Growth Model g = %s\n \
# \n< Cost of equity Ke = %s \n\
# \n< Market value of the share Po = %s" % \
# (self.g_gordonsModel,(self.costOfEquity+'%'),('$'+ str(self.share_price)))
#
# else:
# return "\n< Gordon's Growth Model g = %s\n \
# \n< Cost of equity Ke = %s \n\
# \n< Market value of the share Po = %s" % \
# (self.g_gordonsModel,self.Ke,('$'+ str(self.valueOfShare)))
#
#class CAPM(namedtuple('CAPM','Rf,Beta,Rm'),MyError):
# """ CAPM class inherits from tuple and MyError class """
#
# #set __slots__ to an empty tuple keep memory requirements low
# __slots__ = ()
#
# #Pick Myerror method
# _negativeNumberException =MyError._negativeNumberException
#
# @property
# def Ke(self):
# """ Compute cost of equity using CAPM model """
#
# try:
# #Test for negative numbers input and raise the exception
# self._negativeNumberException(self.Rf,self.Beta,self.Rm)
# return self.Rf + self.Beta*(self.Rm - self.Rf)
#
# #Raise ValueError if input is not numerical
# except TypeError:
# print("\n<The entered value is not a number")
#
# def __str__(self):
# """ String representation of CAPM"""
#
# return "\n< Ke = %s" % self.Ke+"%"
#
#if __name__ == '__main__':
# a = CAPM('Rf','Beta','Rm')
# b = [7,0.7,17]
# a = a._make(b)
# print("\n"+"\4"*43)
# print(a)
# print("\n"+"\4"*43)
# c = DVMextrapolating('dividend_just_paid','dividend_n_years','n','share_price','Ke')
# d = [0.24,0.1525,4,None,a.Ke/100]
# c = c._make(d)
# print(c)
#
# print("\n"+"\4"*43)
# e = DVMgordonsModel('dividend_just_paid','return_on_equity','dividend_payout','share_price','Ke')
#
# f = [0.18,0.2,0.72,None,0.127]
# e = e._make(f)
# print(e)
# print("\n"+"\4"*43)
# g = [0.25,0.17,7,17.50,None]
# c = c._make(g)
# print(c)
#
# print("\n"+"\4"*43)
# h = [0.17,0.3,0.37,1.77,None]
# e = e._make(h)
# print(e)
#
# print("\n"+"\4"*43)
# print()
# print(c.g_extrapolatingModel)
# print(c.costOfEquity)
# print(e.g_gordonsModel)
# print(e.costOfEquity)
# print("\n"+"\5"*43)
# m = [None,0.5,0.57,None,None]
# e = e._make(m)
# print(e.g_gordonsModel)
|
