Stock DCF Math - Discounted Cash Flow Stock Valuation...

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Discounted Cash Flow Stock Valuation Models Value of stock = 0 = PV of expected future cash flows CF 1 CF 2 CF = (1 + r S ) 1 + (1+r S ) 2 + .…. + (1+r S ) CFt = t =1 (1 + r S ) t . Constant Dividend Growth Model D 0 (1 + g) 1 D 0 (1 + g) 2 D 0 (1 + g) 0 = (1 + r S ) 1 + (1 + r S ) 2 + .…. + (1 + r S ) (1 + g) t = D 0 t =1 (1 + r S ) t P 0 D 0 (1 + g) D 1 •solve for r S = r S - g = r S - g r S = D 1 /P 0 + g r S = dividend + growth yield Nonconstant (Supernormal) Growth Model D 1 D 2 D N D N+1 D ± ² = (1+r S ) 1 + (1+r S ) 2 + .…. + (1+r S ) N + (1+r S ) N+1 + .…. + (1+r S ) ± PV of dividends during the
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Stock DCF Math - Discounted Cash Flow Stock Valuation...

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