StockEquityValuation[1]

From the previous section we have mentioned that many

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From the previous section, we have mentioned that many companies initially grow very rapidly in its first few years and then subsequently settling down to a constant growth rate. In this case, to value the price of the stock of a company, we need to consider both the initial hyper growth stage and the subsequent constant growth stage. To value the stock price of a company with non-constant growth, we can consider the following formula: Stock Price = Sum of Present values of Dividends in first stage High Constant Growth Period + Terminal Value The PriceofStock-TwoStageGrowth worksheet calculates the price of a stock based on the above formula. The worksheet is separated into two sections. The first section calculates the 'Sum of Present values of Dividends in first stage High Constant Growth Period' and the second calculates the Terminal Value. 5.1 Sum of Present values of Dividends in first stage High Constant Growth Period The Expected Dividend is calculated based on the following formula: Expected Dividend at Period X+1 = Dividend of Stock at Period X * (1 + Growth Rate) 5.2 Terminal Value Terminal Value = (Dividend of Stock at Time N *(1+Growth Rate))/(Required Return-Growth Rate)
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Pg 5-7 Equity Valuation Version 1.0 5.3 Sensitivity Analysis The PriceofStock-TwoStageGrowth-SA worksheet calculates the price of a stock with non-constant growth dividends and performs a Sensitivity Analysis by varying the Required Return and Growth rate.
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Pg 6-8 Equity Valuation Version 1.0 6. Price of Stock with Non-Constant Growth Dividends This worksheet is similar to the one calculating the Price of Stock with Two Stage Growth Dividends. It values the stock price based on the following formula: Stock Price = Sum of Present values of Dividends in Non-Constant Growth Period + Terminal Value 6.1 Sum of Present values of Dividends in Non Constant Growth Period The 'Sum of Present values of Dividends in Non Constant Growth Period' section allows you to key in Expected Dividends instead of projecting the dividends using a growth rate. 6.2 Terminal Value Terminal Value = (Dividend of Stock at Time N *(1+Growth Rate))/(Required Return-Growth Rate)
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Pg 6-9 Equity Valuation Version 1.0 6.3 Sensitivity Analysis The PriceofStockatN-ConstGrowth-SA worksheet calculates the price of a stock with non-constant growth dividends and performs Sensitivity Analysis on the stock price by varying the Required Return and Growth rate.
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