THREE-STAGE DIVIDEND DISCOUNT MODEL Assumptions 1. The firm is assumed to be in an extraordinary growth phase currently. 2.

This extraordinary growth is expected to last for an initial period that has to be specified. 3. The growth rate declines linearly over the transition period to a stable growth rate. 4. The firm's dividend payout ratio changes consistently with the growth rate. The user should enter the following inputs: 1. Length of each growth phase 2. Growth rate in each growth phase 3. Dividend payout ratios in each growth phase. 4. Costs of Equity in each growth phase

Inputs to the model Current Earnings per share = Current Dividends per share = Do you want to enter cost of equity directly? If yes, enter the cost of equity = Beta of the stock = Riskfree rate= Risk Premium= Growth Rate during the initial high growth phase Enter length of extraordinary growth period = Do you want to use the historical growth rate? If yes, enter EPS from five years ago = Do you have an outside estimate of growth ? If yes, enter the estimated growth: Do you want to calculate the growth rate from fundamentals? If yes, enter the following inputs: Net Income Currently = Book Value of Equity = Tax Rate on Income= (in currency) (in currency) (in percent) (in years) (Yes or No) (in currency) (Yes or No) (in percent) (Yes or No) (in currency) (in currency) (Yes or No) (in percent) (in percent) (in percent)

The following will be the inputs to the fundamental growth formulation: ROE = (in percent) Retention = (in percent) Do you want to change any of these inputs for the high growth period?(Yes or No) If yes, specify the values for these inputs (Please enter all variables) ROE = (in percent) Retention = (in percent) Do you want to change any of these inputs for the stable growth period? (Yes or No) If yes, specify the values for these inputs ROE = Specify weights to be assigned to each of these growth rates: (in percent)

Historical Growth Rate = Outside Prediction of Growth = Fundamental Estimate of Growth = Growth Rate during the transition period Enter length of the transition period = Do you want the payout ratio to adjust gradually to stable payout? If no, enter the payout ratio for the transition period = Do you want the beta to adjust gradually to stable beta? If no, enter the beta for the transition period = Growth Rate during the stable phase Enter growth rate in stable growth period? Stable payout ratio from fundamentals is = Do you want to change this payout ratio? If yes, enter the stable payout ratio= Will the beta to change in the stable period? If yes, enter the beta for stable period = Output from the program Initial High Growth Phase Cost of Equity = Current Earnings per share= Growth Rate in Earnings per share - Initial High Growth phase Historical Growth = Outside Estimates = Fundamental Growth = Weighted Average Payout Ratio for high growth phase=

(in percent) (in percent) (in percent)

(in years) (Yes or No) (in percent) (Yes or No)

(in percent) (in percent) (Yes or No) (in percent) (Yes or No)

Growth Rate 18.58% 17.00% 0.00% 10.52%

The dividends for the high growth phase are shown below (upto 10 years) Year Earnings Dividends Present Value 1 $1.58 $0.62 $0.55 2 $1.75 $0.68 $0.54 3 $1.93 $0.76 $0.52 4 $2.13 $0.84 $0.51

Transition period (up to ten years) Year Growth Rate Payout Ratio Earnings Dividends Beta Cost of Equity Present Value 11 10.20% 41.77% $4.28 $1.79 1.1 13.05% $0.46 12 9.89% 44.37% $4.71 $2.09 1.1 13.05% $0.48 13 9.57% 46.98% $5.16 $2.42 1.1 13.05% $0.49 14 9.26% 49.58% $5.63 $2.79 1.1 13.05% $0.50

Stable Growth Phase

Growth Rate in Stable Phase = Payout Ratio in Stable Phase = Cost of Equity in Stable Phase = Price at the end of growth phase = Present Value of dividends in high growth phase = Present Value of dividends in transition phase = Present Value of Terminal Price = Value of the stock =

UNT MODEL

hat has to be specified. table growth rate.

$1.43 $0.56 No 1.1 7.00% 5.50% If no, enter the inputs to the cost of equity

10 Yes $0.61 Yes 17.00% No

$0.00 $0.00 0.00%

$0.00

NA 60.84% No

NA 60.84% Yes

20.00%

20.00% 40.00% 40.00%

8 Yes Yes

8.00% 60.0% No No

13.05% $1.43

Weight 20.00% 40.00% 40.00%

39.16%

5 $2.36 $0.92 $0.50

6 $2.61 $1.02 $0.49

7 $2.88 $1.13 $0.48

15 8.94% 52.19% $6.14 $3.20 1.1 13.05% $0.51

16 8.63% 54.79% $6.67 $3.65 1.1 13.05% $0.51

17 8.31% 57.40% $7.22 $4.15 1.1 13.05% $0.52

8.00% 60.00% 13.05% #REF! $3.58 $3.47 #REF! #REF!