Enter length of extraordinary growth period = Enter growth rate for high growth period =
5 10.00%
(in years)
Inputs for cost of equity Beta of the stock = Riskfree rate= Risk Premium= 1 5.00% 4.00% (in percent) (in percent)
4.00%
(in percent)
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Return on equity in stable growth = Will the beta to change in the stable period? If yes, enter the beta for stable period =
To reconcile the dividend discount model and the FCFE model, you have to input the following: Do you want to assume that the cash buildup that will occur if dividends < FCFE get reinvested at the cost of equity = If not, enter the rate of return you expect to earn on this cash (assuming that it is invested at current risk level) =
$100.00 10.00%
Growth Rate in capital spending, depreciation and working capital High Growth Growth rate in capital spending = Growth rate in depreciation = Growth rate in revenues = 10.00% 10.00% 10.00% Stable Growth 4.00% 4.00% 4.00%
5.00% 7.00%
(in percent)
The FCFE for the high growth phase are shown below (upto 6 years) 1 Net Income - (CapEx-Depreciation) - Change in Working Capital + Net Debt Cash flow Free Cashflow to Equity Dividends PV of FCFE PV of Dividends $110.00 $27.50 $5.00 $11.00 $88.50 $33.00 $81.19 $30.28 2 $121.00 $30.25 $5.50 $12.10 $97.35 $36.30 $81.94 $30.55 3 $133.10 $33.28 $6.05 $13.31 $107.09 $39.93 $82.69 $30.83 4 $146.41 $36.60 $6.66 $14.64 $117.79 $43.92 $83.45 $31.12
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$55.50
$120.44
$196.02
$283.61
FCFE Growth Rate in Stable Phase = FCFE (Dividends) in Stable Phase = Cost of Equity in Stable Phase = Price at the end of growth phase = Additional cash build up over high growth period = 4.00% $111.66 9.00% $2,233.24
FCFE Present Value of FCFE in high growth phase = Present Value of Terminal Price = Present Value of Cash build up in terminal year = Value of the stock = $1,864.93 $413.48 $1,451.45
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tage Valuation
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No 7%
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$384.72
$9.26
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$384.72
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