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The Traditional Approach to Valuing Levered–Growth Stocks: A Clarification

Published online by Cambridge University Press:  19 October 2009

Robert A. Haugen  and
Prem Kumar
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Extract

The traditional valuation framework is unsuited to the task of valuing a growth stock when the capitalization rate is specified in terms of market leverage, simply because it is impossible to maintain a constant ratio of book to market leverage over the growth horizon. This severely limits the usefulness of the traditional model in analyzing the valuation problem. We have proposed a more general form of the model which allows us to show the consistency between M-M's Propositions I and II under growth.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 6 , December 1974 , pp. 1031 - 1044
Copyright
Copyright © School of Business Administration, University of Washington 1974

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