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  "documentTitle": "Bear Stearns | Investment Banking Pitch Book | 36 slides",
  "authorId": "bear-stearns",
  "authorName": "Bear Stearns",
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  "presentationDate": "2005-01-01 00:00:00",
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  "notes": "The slide provides a practical guide for financial analysts to sanity-check CAPM outputs using external data sources like Value Line.",
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      "text": "Return on the market (RM) in CAPM can be checked by using Value Line or another source of projected return on the market.\nValue Line provides weekly median dividend yields and projected 3 to 5 year capital appreciation for the 1,700 stocks in its data base. Using the dividend discount model,(1) you can impute a projected return on the market by adding Value Line estimates of the dividend yield (in percent) to the annual capital appreciation (in percent).\nExpected market risk premium (RM-RF) can be determined by subtracting the current yield on 20-year Treasuries from the projected return on the market.",
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      "text": "The cost of equity for public companies can be checked directly.(2)\nReview recent analysts' reports for 3 to 5 year company projections and calculate the rate of return based on the dividend discount model.\nIf the Company is in Value Line's data base, consider Value Line's estimate of the Company's projected annual return over the next 3 to 5 years.",
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      "text": "Because the market risk premium used in CAPM is based on the historical relationship between the return on the market portfolio (RM) and the return on US Treasuries (RF), it may be useful to check these inputs and the resulting cost of equity calculation with projected rates of return.",
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      "text": "While it is unlikely that the cost of equity from CAPM would coincide exactly with the projected rates of return for the market or the subject company using the dividend discount model, major differences in results should be explained.",
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      "text": "(1) Based on the dividend discount model KE = D/P + g, where KE = cost of equity, D = annual dividend, P = stock price, and g = annual growth in dividends.\n(2) If betas of comparable companies are used to estimate the subject company's beta, the cost of equity for the subject company can be checked by calculating the comparable company average rate of return based on the dividend discount model.",
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      "text": "Checking the CAPM Result",
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