Discounted Dividend Valuation

Data Input D r stock g long-term g short-term n short-term g mid-term n mid-term Current dividend per share, $ Cost of equity (Opportunity cost), % Long-term dividend growth rate, % Short-term dividend growth rate, % Length of short-term period, years Mid-term dividend growth rate, % Length of mid-term period, years 0.00 0.00% 0.00% 0.00% 0 0.00% 0

Results Stock value Number of Shares Company value

Cost of Equity (Opportunity Cost) Calculator - CAPM Risk-free interest rate, % Market risk, % Beta of a stock Cost of equity (Opportunity cost)

0.00
0 0.00

rf rm stock r stock

0.00% 0.00% 0.0000 0.00%

1 2 3 4 5 6 7 8 9 10

Time 1 2 3 4 5 6 7 8 9 10

Manual Model Type Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

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PV 0 Number of periods 0 10 0 0 0 0 0 0 0 0

Model Type One-Stage rstock Calculation Method 0.00% Manual Growth Rate Drop Instantly

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Instructions

This is a discounted dividend taking into account various p

Template is based on Divide using predicted dividends an from the DDM is higher than

Template provides an oppor Stage model, Three-Stage mo

1) One-Stage or Gordo 2) Two-Stage model: t constant growth rate drop). The second m growth rate in stage 3) Three-Stage model: the company is assum example, Stage 1 cou years, and Stage 3 5 the middle (second) drop). 4) Manual model: in th years. After you put t present value, thus d

Key terms for this template:

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Number of periods 10

D Current dividend r stock Cost of equ g Dividend growth model type chosen. n Length of the per type chosen.

To start working with this tem

Choose the appropria Type data required in r stock this rate can The second option is t calculate the rate, usi this cell Manual). After CAPM is chose appears. Fill in the tab r f is the risk r m - the expe stock - the s

The second option is t calculate the rate, usi this cell Manual). After CAPM is chose appears. Fill in the tab r f is the risk r m - the expe stock - the s After these values are typed,

If youve chosen Tworate drop from the dr instructions. Dependi appropriate values. If youve chosen Man cell J3. You should cho E33. After that, type t values, click on the ce

After all values are pu You can also enter the company value (multi

Instructions
This is a discounted dividend valuation model. This model will help you to calculate a fair price for the stock, taking into account various parameters. Template is based on Dividend Discount Model (DDM). DDM is a procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The idea is that if the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued. Template provides an opportunity to choose between four different model types: One-Stage model, TwoStage model, Three-Stage model and Manual model. Further you can find description for each model type: 1) One-Stage or Gordon Growth model: assumes that dividends grow indefinitely at a constant rate. 2) Two-Stage model: two common versions of the two-stage DDM exist. The first model assumes a constant growth rate in each stage, as 15% in stage one and 7% in stage two (Instant growth rate drop). The second model assumes a declining dividend growth rate in stage one followed by a fixed growth rate in stage two (Gradual growth rate drop). 3) Three-Stage model: there are also two popular versions of this type of model. In the first version, the company is assumed to have a constant dividend growth rate in each of the three stages. For example, Stage 1 could assume 20% growth for 3 years, Stage 2 could have 10% growth for four years, and Stage 3 5% growth rate thereafter (Instant growth rate drop). In the second version, in the middle (second) period, the growth rate is assumed to decline linearly (Gradual growth rate drop). 4) Manual model: in this model you should manually put a dividend per share for a certain number of years. After you put these values, model will calculate dividend cash flow and discount it back to present value, thus defining a stock value. Key terms for this template: D Current dividend per share in $ r stock Cost of equity (Opportunity cost) or Expected rate of return on a certain asset in % g Dividend growth rate in %. There can be g short-term, g mid-term, and g-long-term, depending on model type chosen. n Length of the period in years. There can be n short-term and n mid-term, depending on model type chosen.

To start working with this template: Choose the appropriate model type from the drop-down list in cell H3; Type data required in table Data Input; r stock this rate can be defined in two ways. The first option is to write this value manually in cell D6. The second option is to calculate this rate, using Capital Asset Pricing Model (CAPM). If you want to calculate the rate, using this model, chosse CAPM from the drop-down list in cell H6 (otherwise leave this cell Manual). After CAPM is chosen in cell H6, additional table Cost of Equity (Opportunity Cost) Calculator - CAPM appears. Fill in the table with appropriate values: r f is the risk-free rate of interest (in %) such as interest arising from government bonds r m - the expected market rate of return in %; stock - the sensitivity of the expected asset returns to the expected market returns.

The second option is to calculate this rate, using Capital Asset Pricing Model (CAPM). If you want to calculate the rate, using this model, chosse CAPM from the drop-down list in cell H6 (otherwise leave this cell Manual). After CAPM is chosen in cell H6, additional table Cost of Equity (Opportunity Cost) Calculator - CAPM appears. Fill in the table with appropriate values: r f is the risk-free rate of interest (in %) such as interest arising from government bonds r m - the expected market rate of return in %; stock - the sensitivity of the expected asset returns to the expected market returns. After these values are typed, r stock will be calculated automatically and used to define the stock value. If youve chosen Two-Stage or Three-Stage model type in cell H3, you can choose the type of the growth rate drop from the drop-down list in cell H9. Both types are described at the beginning of the instructions. Depending on the type, additional rows in Data Input table will appear. Fill them with appropriate values. If youve chosen Manual model type in cell H3, you can click on the cell Go to Table that will appear in cell J3. You should choose the appropriate number of years for calculation from the drop-down list in cell E33. After that, type the dividend per share for each period in table Manual Model Type. After you type values, click on the cell Go back to Inputs to return to the beginning of the worksheet. After all values are put into appropriate tables, stock value will be calculated automatically in cell D16. You can also enter the number of shares in cell D17, and template will automatically calculate the company value (multiplying stock value by the number of shares).

a fair price for the stock,

Andrew Grigolyunovich, CFA AG Capital www.cfotemplates.com

ng the price of a stock by at if the value obtained is undervalued.

e-Stage model, Twofor each model type:

tely at a constant rate. rst model assumes a (Instant growth rate one followed by a fixed

If you wish to change something in this template, just order customization to your needs at info@cfotemplates.com. To order customization: Think about changes that need to be made to your new template; Send your requests and other comments to info@cfotemplates.com. We will estimate the number of hours needed to customize your template and we will send you a price quote. Proceed to customization link at www.cfotemplates.com/Customization.htm.

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