STOCKS AND

THEIR
VALUATION
Esmele,Mae Rose
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Continuation..
• Constant Growth Stocks
• Valuing Non-Constant Growth
Stocks
• Enterprise-Based Approach to
Valuation
• Preferred Stocks

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CONSTANT
GROWTH STOCKS
Gordon Model
DIVIDEND GROWTH MODEL

Constant Growth Formula:

• A method that is used to
value the stock/share
price of a company.
Po=d1/ke-g
D1=do(1+g)
Wherein:
Po=Current market price
Do=Current Dividend
Ke=Shareholders’ cost capital
g=Expected annual growth in the
dividend payments

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 Palmgor Capitals’s shareholders require
a minimum return of 18%. The

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company last paid out a dividend of $6
per share, which is expected to increase
by 10 per annum.

Po=d1/ke-g

Example
D1=do(1+g)

D1=$6(1+0.10)=6.6
ke-g=0.18-0.10=0.08

Po=6.6/0.08=$82.50

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NON-CONSTANT
GROWTH STOCKS
DIVIDEND GROWTH MODEL

Non-Constant Growth Formula:

• A method that is used to value the Po=d1/ke-g
stock/share price of a company. D1=do(1+g)
• This model assumes that two stages of
Wherein:
dividend growth exist:
Po=Current market price
• A first stage with a high growth rate for n
years, the 'supernormal' period. Do=Current Dividend
• A second stage with a constant growth Ke=Shareholders’ cost capital
rate forever, the 'normal' period. g=Expected annual growth in the
dividend payments

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The steps to follow in calculating the price

of a share using non-constant model are:

1) Calculate the expected dividends for all the

years with high growth (supernormal
period)
2) Calculate the market price per share for the
final year of the high growth (supernormal
period)
3) Discount all the future cash flows using the
required rate of return to find the present
value
4) Add up all the discounted cash flows to
get the current market price per share

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Palmgor Capital's ordinary share has just
paid a dividend of $6.00 per share which
is expected to grow at 18% in the first 3
years and from the 4th year, the growth
will be 7% per year forever. The share
has a required return of 20%. What is
the price investors would be willing to
pay for the share?

Example

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Computation
Po=d1/ke-g Cash flow today =
Cashflow / (1+Ke)^the
D1=do(1+g) year you are discounting
D1= $6 (1+0.18) = $7.08 D2= $7.08 D1 = $7.08 / (1+0.20) = $5.90
(1+0.18) = $8.35
D2 = $8.35 / (1+0.20)^2 = $5.80
D3 = $8.35 (1+0.18) = $9.86
D3 = $9.86 / (1+0.20)^3= $5.70

P3 = D4 / (Ke -g)
P3 = $81.16/(1+0.20)^3=$46.97
D4 = D3 (1 + g) = $9.86 (1+0.07) = $10.55
P3 = $10.55 / (0.20 - 0.07) = $81.16
Po = $5.90+$5.80+5.70+$46.97= $64.37

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ENTERPRISE-BASED
APPROACH
Subtitle
 Enterprise-based programs are training initiatives
used by businesses and corporations. These
programs can be any of the following: An apprentice
and employer enter into a contract for training and
employment in a job that has been approved as an
apprenticeable occupation.

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Team

HUMAN TRAINER TEAM LEADER SKILLED

RESOURCE WORKER

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PREFERRED STOCK
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Preferred stock is
its own unique
type of stock

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20XX

THANK YOU
Esmele,Mae Rose B.

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