Module 13D
VALUATION OF COMMON STOCK WITH NON-CONSTANT GROWTH
OBJECTIVE:
The dividend growth stock valuation model is very simple when the dividend is expected to grow at a
constant rate into infinity. However, when a company's dividends are not expected to grow at a constant
rate, the model becomes more complex. This program is designed to value companies whose growth is
expected to be abnormal for up to ten years, after which it will settle into a constant growth pattern. This
module is particularly useful for companies with an expected high growth rate in the short-run (so-called
super growth companies).
INPUTS (will appear in blue):
The following inputs are needed:
1) Current dividend -- cell D38
2) The year in which constant growth begins -- cell D40
3) The long-term (normal) dividend growth rate (entered as a
decimal) -- cell D42
4) The company's equity cost of capital (as a decimal) -- cell D44
5) The annual dividend growth rates (as a decimal) during the first
ten years -- cells F41 to F50. If abnormal growth is expected
to be less than ten years, leave the remaining cells blank.
6) The dividend paid in the last year of abnormal growth
(the last number in column H) -- cell D46
COST OF CAPITAL CALCULATION:
This program can also be used to obtain the firm's cost of capital if the current stock price is known.
Simply through trial and error, enter different costs of capital in cell D44 until the actual current price
appears in cell H55.
VALUATION MODEL WITH NON-CONSTANT GROWTH
Sample data have been entered as an example.
Dividend, year 0 1.60 Short-term dividend growth:
Year Percent
1st yr. of constant growth 6
1 30.0% 2.08
L-t dividend growth 7.0% 2 30.0% 2.70
3 30.0% 3.52
Cost of capital 13.0% 4 20.0% 4.22
5 20.0% 5.06
Last abnormal dividend 5.06 6 0.00
7 0.00
8 0.00
9 0.00
10 0.00

Present value of abnormal dividends 11.73
Present value of normal growth dividends 48.98
Stock price at t = 0 60.71

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