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

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  • Haugen, Robert A.
  • Kumar, Prem

Abstract

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.

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  • Haugen, Robert A. & Kumar, Prem, 1974. "The Traditional Approach to Valuing Levered–Growth Stocks: A Clarification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(6), pages 1031-1044, December.
    • Handle: RePEc:cup:jfinqa:v:9:y:1974:i:06:p:1031-1044_01
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    1. Ajaya Kumar Panda & Swagatika Nanda & Apoorva Arunachal Hegde & Akhilesh Kumar Kamalakant Yadav, 2023. "Receptivity of capital structure with financial flexibility: A study on manufacturing firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1981-1993, April.

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