The return for ABC Company is 21% at present. This is assumed to continue for the next 5 years.

And after that it is assumed to have a gro

@ 10% indefinitely. The dividend paid for the year is 3.2. The required rate of return is 20% . What is the value of the stock a per consta
growth?

Constant Growth Model

5 yrs return 21%
constant growth 10%
current year div 3.2
rrr 20%

div years div value growth

d0 0 3.2
d1 1 3.87 21%
d2 2 4.69 21%
d3 3 5.67 21%
d4 4 6.86 21%
d5 5 8.30 21%
d6 6 9.13 10%
p5 5 91.30 ans red

constant growth starting from 6th year po price at the rnd of respective year
calculateprice of year5 Po= DIV1/(Ke -g) div1 div for the next year
p5= D6/(Ke-g) ke cost of equity
g constant growth rate
r that it is assumed to have a growth
e value of the stock a per constant

he rnd of respective year

growth rate
 The return for ABC Company is 21% at present. This is assumed to continue for the next 5 years. A
10% indefinitely. The dividend paid for the year is 3.2. The required rate of return is 20% and pres
the stock?

return
 The rate of return on the nagarjuna
fertilizers stock for the past 5 years is
18.58%. This assumed to continue for
the next 5 years and therafter rate of
return is assumed to have a growth of
10% indefinitely. The dividend paid
for the year is 1.8. The required rate
of return is 20%. CMP is 14. Estimate
the intrinsic value of the stock and see
if the stock is undervalued or
overvalued.
5 years growth 18.58%
constant growth 10%
rrr 20%
div for next year(1st year not 0 year) 1.8
cmp 14

div years div value growth

d0 0 1.52
d1 1 1.8 18.58%
d2 2 2.13 18.58%
d3 3 2.53 18.58%
d4 4 3.00 18.58%
d5 5 3.56 18.58%
d6 6 3.91 10.00%
p5(price) 5 39.15

intrinsic value
cmp
 pv

(given div for 1st year) ₹ 1.50

₹ 1.48
₹ 1.46
₹ 1.45
₹ 1.43

p5= d6/(ke-g) ₹ 15.73 d6 isliye nahi liya kuki wo p5mai tha phle se

₹ 23.06 undervalued
14 underval or over by If function
 For the first 4 years, XYZ is
assumed to grow at a rate of
10%. After four years, the
growth of dividend is assumed
to decline linearly to 6%. After8
years, the firm is assumed to
grow at a rate of 5% infinitely.
The next year dividend is Rs2
and the required rate of return
is 14%. Find the intrinsic value
of the stock.

rrr 14%
1st 4 year growth 10% constant growth from 9th year
linear decline to
linear decline 1% linear decline year
5th year growth 9%
6th year growth 8%
7th year growth 7%
8th year growth 6%

constant growth from 9th year 5%

div years div value

d0 0 1.87
d1 1 2.00
d2 2 2.20
d3 3 2.42
d4 4 2.66
d5 5 2.90
d6 6 3.13
d7 7 3.35
d8 8 3.55
d9 9 3.73
p8 8 41.47

intrinsic value
growth from 9th year 5%
6%
4%

growth pv

10% ₹ 1.75
10% ₹ 1.69
10% ₹ 1.63
10% ₹ 1.58
9% ₹ 1.51
8% ₹ 1.43
7% ₹ 1.34
6% ₹ 1.25
₹ 14.54

₹ 26.71