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  "documentTitle": "why invest in goldman sachs",
  "authorId": "GoldmanSachs",
  "authorName": "St. John's University Student Managed Investment Fund",
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  "notes": "Includes specific CAPM calculation and historical data table for 1999-2006.",
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      "text": "Goldman has average annual growth rate of dividends per share (8-years, because they did not pay dividends before the last two quarters of 1999) at 27.3%.",
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      "text": "1) CAPM: 10-year treasury strip (04/30/07) = 4.810% Risk Premium = 6.500% Beta = 1.2307 CAPM = 0.0481 + 1.2307*(0.065) = 12.810% 2) Another cost of capital YTM on GS bonds outstanding = 5.404% Equity Premium = 3.000% K2 = 8.404% 3) K3 = 10.000%",
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      "text": "Cost of Capital: 12.810%",
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      "text": "We applied sensitivity analysis to CAPM, therefore using three different K's. The first K we used is from CAPM, 12.81%, and the K based on Goldman's bond yield is 8.404%. We chose a third k of 10% to see what the intrinsic value would be if K was in between the other two Ks since they were so far apart.",
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      "text": "Then, in order to estimate the dividend for 2007, we had to calculate the average payout ratio over the last ten years (9.4%) and use our estimate of E [EPS2007], or $29.98, to derive an E[DPS2007]. Since that estimated dividend, .094*29.98 = $2.82 is over twice as high as their 2006 actual DPS, we noticed that Goldman Sachs has historically displayed a similar pattern in the way they payout dividends. Thus, we decided to estimate dividends from 2007 to 2012 using a certain percentage. Goldman has average annual growth rate of dividends per share (8-years, because they did not pay dividends before the last two quarters of 1999) at 27.3%. And since there is no difference with the 4-years growth, we decided to use 8-years growth at 27.3%. And Goldman Sachs shows no sign of slowing down in the near future. The chart below gives us a better understanding of how Goldman Sachs paid out dividends:",
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      "text": "This valuation model allowed us to estimate Goldman Sachs' intrinsic value by discounting their cash flows (CF's) through the use of the Dividend Discount Model (DDM). The first step was to determine two different costs of capital, k1 and k2, to calculate the PV of the dividend CF's. This can be seen through the following:",
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      "text": "GS PAYOUT RATIOS FOR LAST 8 YEARS. Years 1999-2006, DPS, ROE, DPR rows.",
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      "kind": "title",
      "text": "VI. ABSOLUTE VALUATION",
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