Decision Studio

What return is priced in?

Reverse a dividend-based equity valuation to solve the implied cost of equity. The result is the annual discount rate consistent with your share price, earnings and cash-flow assumptions.

Your assumptions

Start with an illustrative example, then enter your own values. These inputs are unverified and do not represent current stock data or an earnings forecast.

Display currency

Labels only; no conversion. All per-share values must use the same currency and share basis.

Price & earnings

Current share price/shareEnter your own price; no quote is fetched.Trailing annual EPS/sharePositive earnings per share, consistent with price and any splits. Use one consistent accounting basis.Annual dividend per share/shareZero is allowed. Explicit payout = dividend / EPS, held constant during the forecast.EPS growth during forecast%/yrA constant annual assumption, not consensus. Change this to test your own outlook.Explicit forecast periodyearsDividends are paid at each year-end; terminal value is measured at the final forecast year.

Long-run assumptions

Risk-free rate%/yrYour government-bond yield assumption in the stock’s currency. No market yield is fetched.Perpetual growth equals risk-free rateA modelling convention, not a forecast. Turn off to enter a separate growth rate.Terminal ROE equals the implied rateDefault: new investment earns its required return. Terminal value simplifies to next-year EPS / implied rate.

Optional beta cross-check

Equity beta (optional)×Blank by default. Used only to divide the implied premium by beta; it does not change the valuation or provide a CAPM estimate.

Implied cost of equity · Your forecast

8.87%

The discount rate that makes your projected dividends and terminal value equal ₹760.00 per share. It is conditional on the forecast, not a promised or independently estimated future return.

Implied equity risk premium

1.75 pp

Above your 7.12% risk-free assumption.

Price from terminal value

90.7%

Value after year 5; especially sensitive to long-run assumptions.

Explicit dividend payout

26.3%

Premium per unit of beta

Beta not entered

A ratio, not a CAPM required return.

Where value meets price

Horizontal axis: annual discount rate. The intersection is 8.87%. Values use terminal ROE equal to each tested discount rate.

What makes up the price?

PV of years 1–5 dividends

₹70.83

PV of terminal value

₹689.17

P/E
15.35×

Earnings yield
6.51%

Dividend yield
1.71%

The terminal assumption matters

Terminal ROE = implied rate

8.87%

New reinvestment adds no excess return. This is the default assumption.

Terminal ROE = 13.5%

10.92%

Fixed return on new investment forever. The inactive ROE input is preserved when switching modes.

Growth sensitivity

Implied annual rate as explicit EPS growth (rows) and perpetual growth (columns) change. Terminal ROE uses your selected mode. Select a valid cell to apply both growth assumptions and unlink perpetual growth from the risk-free rate.

Implied rate by EPS growth and perpetual growth
EPS / perpetual	5.12%	6.12%	7.12%	8.12%	9.12%
8.0%
10.0%
12.0%
14.0%
16.0%

A dash means invalid assumptions or no solution within the search range. Each cell changes only the two growth inputs.

Forecast cash flows & export

Explicit-period per-share dividends and their present values
Year	EPS	Dividend	PV dividend
1	₹55.44	₹14.56	₹13.37
2	₹62.09	₹16.31	₹13.76
3	₹69.54	₹18.26	₹14.16
4	₹77.89	₹20.46	₹14.56
5	₹87.24	₹22.91	₹14.98

Terminal payout: 19.70%. Terminal value at year 5: ₹1,053.90.

Or copy the assumptions and calculations

Implied cost of equity · illustrative model
Currency,INR
Assumption,Value
price,760
eps,49.5
dps,13
growth,12
years,5
terminalGrowth,7.12
linkGrowth,true
terminalRoe,13.5
linkRoe,true
riskFree,7.12
beta,
Effective perpetual growth (%),7.12
Method,Constant explicit payout; constant EPS growth; terminal reinvestment; bisection up to 150%
Limitations,User assumptions are not verified market data or forecasts; no capital retention model; terminal value can dominate; implied return is conditional
Implied annual rate,0.08866752800306413
Equity premium,0.01746752800306413
PV explicit dividends,70.83227715186283
PV terminal value,689.1677228481371

Year,EPS,Dividend,Present value of dividend
1,55.440000000000005,14.560000000000002,13.374147410006172
2,62.09280000000001,16.307200000000005,13.759062995736523
3,69.54393600000002,18.264064000000005,14.155056671426257
4,77.88920832000002,20.45575168000001,14.562447270818925
5,87.23591331840004,22.91044188160001,14.98156280387495

Implied annual rate sensitivity (decimal); blanks mean no valid solution
EPS growth (%) / terminal growth (%),5.12,6.12,7.12,8.120000000000001,9.120000000000001
8,0.07625582710735837,0.07678249129122972,0.07730690090290693,,
10,0.0817842218689527,0.08233843451539802,0.08289018246859936,0.08343949129823647,
12,0.08750678453872462,0.08808849639970362,0.08866752800306413,0.08924390811871702,
14,0.09341785920158074,0.09402695861571286,0.09463315776308895,0.09523648877348434,0.09583698321476186
16,0.0995115320082097,0.10014785149022884,0.10078104722933989,0.10141115485692778,0.10203820936315686

Method, interpretation & limits

EPS grows at your explicit rate for 1–20 years. Annual dividends equal EPS × the starting dividend/EPS ratio. A zero dividend produces no explicit-period cash flow; earnings support the terminal value through the assumed mature payout.

Terminal payout = 1 − perpetual growth / terminal ROE. Terminal value = next-year EPS × terminal payout / (discount rate − perpetual growth). If terminal ROE equals the solved rate, this simplifies to next-year EPS / rate. The rate must still exceed perpetual growth and zero for the underlying mature payout model to be valid.

The calculator solves price = present value of explicit dividends + present value of terminal value using bisection between the larger of perpetual growth + 0.0001 percentage point and 0.01%, and 150%. It reports no solution when that valid interval does not bracket the price. Negative earnings, payouts above 100%, and negative terminal payouts are not supported.

The implied premium is the solved rate minus the entered risk-free rate. Dividing by optional beta is a cross-check only. Price, EPS, dividends, share count adjustments, accounting basis, risk-free yield and beta must be verified independently. No quote, analyst forecast or beta is fetched.

A large terminal share means the result depends heavily on distant cash flows. Higher implied return can reflect forecast optimism; the model cannot identify mispricing independently of growth assumptions. It assumes constant payout, one discount rate, an immediate transition to perpetual growth, and no explicit capital-retention constraint. Banks may require a book-value and residual-income model; that model is not included here.

Starting values are an unverified numerical example, without a claim about any company’s current valuation. This is an educational scenario tool, not an investment recommendation. Calculator inputs are not saved or transmitted.