Okay, we're going to use the Gordon Growth Model to analyze five companies, and specifically, we want to pull out the P ratio and the price to book, and think about how that changes for various things that are changing across these companies. Notably, we're going to focuson the cost of equity and the growth rate and the return on equity. So the first thing we want to calculate is the closing shareholder's equity. So if we go and grab the equity growth rate for alpha, which we're going to take asour base case, that's 3%, and multiply that out by the opening shareholders' equity, then we get the closing shareholders' equity. Let's figure out what the dividend is. Well, if you think about your base analysis, if you know in G10, what the opening shareholders' equity is, and you know what the net income is in G9, you could subtract from that the closing shareholder's equity and that gives you the dividend. So how do we calculate the equity value, the market value of equity? Well, this brings us back to our Gordon Growth Model. So why don't we go and grab the dividend and divide it by the cost of equity minus the growth rate.

And we get the market value of equity. That'd be a key number to focus on as we copy this out for the other companies. Let's think about the return on equity. Return on equity is net income divided by remember the book value of opening shareholders' equity, so we've got 10%. Now we've everything we need to calculate the implied PE. So price would be the equity value, and E would be the earnings. So we've got a PE of 14 times, and similarly, for the price to book, we're going to grab theprice, the equity value, and divide it by the book value of the shareholder's equity. So I've got 1.4. Now what's of interest is if we grab that and copy that out to the right, we can do some analysis for each company. Let's use Alpha as our base case. So Beta appears to have the same closing shareholders equity, but you'll notice that it's got higher net income level. This means that it's paying more dividends, which of course, results in higher equity value of 18,000. Let's look at Gamma. So we've got a lower return on equity but we've got more growth. More growth equals more value compared to our base case. Let's look at Delta. So in Delta's case, the cost of equity and return on equity are the same. So because they're the same, it's really just covering its hurdle rate, its cost of equity rate, having a depressing impact on equity value. If we look at the final company, you could say, "Well, look, the final company's got really high growth rate of 5%, so that must mean that it's more valuable." But unfortunately, it's still the case that its cost of equity is the same as its return on equity. So it's not generating any value at all, that extra growth.