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Non-constant growth stock valuation :
Current price (P) = D 1 / (1 + required rate)1 + D 2 / (1 + required rate)2 + D 3 / (1 + required
rate)3 + D 4 / (1 + required rate)4 + D 5 / (required rate - growth rate) * (1 + required rate)-4
= 3.4 / (1 + 0.14)1 + 3.57 / (1 + 0.14)2 + 3.7485/ (1 + 0.14)3 + 4.3108 / (1 + 0.14)4 + 4.7419
/ (0.14 - 0.10) * (1 + 0.14)-4
= 3.4 / 1.14 + 3.57 / (1.14)2 + 3.7485/ (1.14)3 + 4.3108 / (1.14)4 + 4.7419 / 0.04 * (1.14)-4
= 3.4 / 1.14 + 3.57 / 1.2996+ 3.7485/ 1.4815 + 4.3108 / 1.6890 + 4.7419 / 0.04 * 1/1.6890
= 2.98 + 2.75+ 2.53 + 2.55 + 70.19
= $81
Note:-Calculation of future dividends:
D 1 = current dividend * (1 + growth rate)
= $3.40 * (1 + 0%)
= $3.4
D 2 = 3.4 * (1 + 0.05)
= 3.57
D 3 = 3.57 * (1+0.05)
= 3.7485
D 4 = 3.7485 * (1+ 0.15)
= 4.3108
D 5 = 4.3108 * (1+ 0.10)
= 4.7419
Solution
Non-constant growth stock valuation :
Current price (P) = D 1 / (1 + required rate)1 + D 2 / (1 + required rate)2 + D 3 / (1 + required
rate)3 + D 4 / (1 + required rate)4 + D 5 / (required rate - growth rate) * (1 + required rate)-4
= 3.4 / (1 + 0.14)1 + 3.57 / (1 + 0.14)2 + 3.7485/ (1 + 0.14)3 + 4.3108 / (1 + 0.14)4 + 4.7419
/ (0.14 - 0.10) * (1 + 0.14)-4
= 3.4 / 1.14 + 3.57 / (1.14)2 + 3.7485/ (1.14)3 + 4.3108 / (1.14)4 + 4.7419 / 0.04 * (1.14)-4
= 3.4 / 1.14 + 3.57 / 1.2996+ 3.7485/ 1.4815 + 4.3108 / 1.6890 + 4.7419 / 0.04 * 1/1.6890
= 2.98 + 2.75+ 2.53 + 2.55 + 70.19
= $81
Note:-Calculation of future dividends:
D 1 = current dividend * (1 + growth rate)
= $3.40 * (1 + 0%)
= $3.4
D 2 = 3.4 * (1 + 0.05)
= 3.57
D 3 = 3.57 * (1+0.05)
= 3.7485
D 4 = 3.7485 * (1+ 0.15)
= 4.3108
D 5 = 4.3108 * (1+ 0.10)
= 4.7419

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Non-constant growth stock valuation Current price (P) = D 1 (1 .pdf

  • 1. Non-constant growth stock valuation : Current price (P) = D 1 / (1 + required rate)1 + D 2 / (1 + required rate)2 + D 3 / (1 + required rate)3 + D 4 / (1 + required rate)4 + D 5 / (required rate - growth rate) * (1 + required rate)-4 = 3.4 / (1 + 0.14)1 + 3.57 / (1 + 0.14)2 + 3.7485/ (1 + 0.14)3 + 4.3108 / (1 + 0.14)4 + 4.7419 / (0.14 - 0.10) * (1 + 0.14)-4 = 3.4 / 1.14 + 3.57 / (1.14)2 + 3.7485/ (1.14)3 + 4.3108 / (1.14)4 + 4.7419 / 0.04 * (1.14)-4 = 3.4 / 1.14 + 3.57 / 1.2996+ 3.7485/ 1.4815 + 4.3108 / 1.6890 + 4.7419 / 0.04 * 1/1.6890 = 2.98 + 2.75+ 2.53 + 2.55 + 70.19 = $81 Note:-Calculation of future dividends: D 1 = current dividend * (1 + growth rate) = $3.40 * (1 + 0%) = $3.4 D 2 = 3.4 * (1 + 0.05) = 3.57 D 3 = 3.57 * (1+0.05) = 3.7485 D 4 = 3.7485 * (1+ 0.15) = 4.3108 D 5 = 4.3108 * (1+ 0.10) = 4.7419 Solution Non-constant growth stock valuation : Current price (P) = D 1 / (1 + required rate)1 + D 2 / (1 + required rate)2 + D 3 / (1 + required rate)3 + D 4 / (1 + required rate)4 + D 5 / (required rate - growth rate) * (1 + required rate)-4 = 3.4 / (1 + 0.14)1 + 3.57 / (1 + 0.14)2 + 3.7485/ (1 + 0.14)3 + 4.3108 / (1 + 0.14)4 + 4.7419 / (0.14 - 0.10) * (1 + 0.14)-4 = 3.4 / 1.14 + 3.57 / (1.14)2 + 3.7485/ (1.14)3 + 4.3108 / (1.14)4 + 4.7419 / 0.04 * (1.14)-4 = 3.4 / 1.14 + 3.57 / 1.2996+ 3.7485/ 1.4815 + 4.3108 / 1.6890 + 4.7419 / 0.04 * 1/1.6890 = 2.98 + 2.75+ 2.53 + 2.55 + 70.19 = $81 Note:-Calculation of future dividends:
  • 2. D 1 = current dividend * (1 + growth rate) = $3.40 * (1 + 0%) = $3.4 D 2 = 3.4 * (1 + 0.05) = 3.57 D 3 = 3.57 * (1+0.05) = 3.7485 D 4 = 3.7485 * (1+ 0.15) = 4.3108 D 5 = 4.3108 * (1+ 0.10) = 4.7419