valuation theory applied to true growth stock, page-5

Thanks for those kind words, Stefanis.

While I never claim to having the monopoly on investing intellectual property, I have an investment process which many will describe as overly cautious, and while it has indeed not given too many any major adrenaline rushes, it has served me very well for many years in steadily creating weath. (Come to think of it, adrenaline is not really what I seek when it comes to my financial future...appropriately risk-adjusted returns is more my appetite).

To answer your first question, yes, my payback period approach is agnostic to tax consequences as I assume that the portion of FCF that I will receive as an investor will be received in a tax-effective manner (i.e., in the form of dividends that come with tax credits or share buybacks). However, this doesn't mean that I view unfranked dividends the same as franked ones. Also, without exposing my personal financial affairs my investments live in legal tax-effective structures, such as disctretionary family trusts.
(This might sound confusing and contradictory, as if I am saying no, I don't worry about tax consequences and then also yes, i do try to invest tax effectively. Hope you're not too confused.)

The cost of equity is essentially a risk free rate (i.e., the at-call interest I could earn on a deposit account with a major bank....~4.0% today) PLUS some equity risk premium (ERP).

The setting of the ERP is, unfortunately, somewhat of a silky science. Essentially, stocks that have very volatile financial performance or are serial market disappointers will have higher ERPs (say 800bp), while reliable, high-quality businesses such as WOW would have lower ERPs (e.g., 400bp).

Also, small cap stocks tend to have higher cost of equity that large cap stocks.

So, for example in ARP's case, I apply an ERP of 650bp (comprised of 450bp because it is a high-quality financial performer, not unlike WOW, plus an additional 200bp for its small cap status).

So, ARP's cost of equity is:
Risk-free rate + ERP = 400bp + 650bp = 10.5%

And yes, I admit that this approach is is really somewhat subjective, meaning that the final answer in terms of share price upside should really be x% plus-or-minus 20%.

Hope this helps

Regards

Cam