The Nonconstant Dividend Growth Stock Pricing Calculator can be used to find the value of a Nonconstant or Supernormal Growth of dividend.
Buttons - Press the Calculate button to calculate the firm value. Press the Clear to clear the calculator.
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.
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))
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.