Nonconstant Growth Firm Value Calculator Dividend at year 0: \$ Year Growth Rate 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % Required Return: % Stock Price: \$

The Nonconstant Dividend Growth Stock Pricing Calculator  can be used to find the value of a Nonconstant or Supernormal Growth of dividend.

• Current Dividend Fields - Enter the Current Dividend (DIVo) in this field.
• Growth Rate Fields - Enter the Dividend Growth Rates in these fields. The last rate entered is used as the constant or normal Dividend growth rate. Leave the remaining Growth Rate fields blank. (For example if the Dividends  began growing at a constant rate in year 4 then the constant growth rate would be entered in the row for year four and the remaining rows would be left blank.)
• Required Return Field - Enter the Required Return in this field.
• Stock Price Field - The StockPrice is displayed in this field.

Buttons - Press the Calculate button to calculate the firm value. Press the Clear to clear the calculator.

### Equations FYI

Po = Do*(1+g1) / r + Do*(1+g1) *(1+g2) / (r^2)+ ... Do*(1+g1) *(1+g2)*...(1+g(n-1))/ (r^(n-1)) + Do*(1+g1) *(1+g2)*...(1+g(n-1))*(1+gn)/(r-gn)

g1: next year's growth rate; gn: nth year's growth rate; Po: current stock price

If non-constant dividend growth rates in the next several years are not given, refer to the following equations.

g1 = D1/Do-1; g2 = D2/D1-1; g3=D3/D2-1,... Until dividend growth rate stays fixed.

For Example,

The Company's last dividend = \$1.  Its dividend growth rate = 20% for 2 years, after which dividends will grow at a rate of 5% forever.  Its required return (rs) = 10%.  Calculate stock prices. (Hint: calculate P2 the price at year 2 using g=5%, and then use NPV(rate, D1, D2+P2))

Solution:

D1= 1*(1+20%) = 1.2

D2 =1.2*(1+20%) = 1.44

D3 = 1.44*(1+5%)

P2 = D3/(r-g) = 1.44*(1+5%)/(10%-5%)

Stock Price = Po=Npv(10%, 1.2, 1.44+ 1.44*(1+5%)/(10%-5%))

copy right 2002 - 2019 by Mark A. Lane, Ph.D.