Constant Growth Valuation Calculation Examples Help

Constant Growth Valuation Calculation Examples, Illustration, Concept, Sample Help Online


Looking for Constant Growth Valuation Calculation Examples, concept and calculations to do your assignments, homework or project then you are at the right place.

Meaning of Constant Growth Valuation

Constant growth valuation is a type of valuation of a stock whose dividends are expected to grow at a constant rate. These valuation techniques are based on certain assumptions as stocks have no date of maturity hence the dividends on the stocks are not specific. These techniques help investors to determine the value of their stock who have their own expected return on the stocks.Therefore, the value of a constant growth stock can be calculated by using the following formula
P0= D0 (1+g)/ r-g
Where, P0 = the stock price at time 0,
D0 = the current dividend,
g = dividend rate expected to grow, and
r = the required rate of return on stock, and

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Constant Growth Valuation Example Explanation

Based on above formula let’s solve a problem and understand the calculation.
Example: Assuming that the current dividend is $4 per share which is expected to grow at the rate of 8% and the required return is 15%.
P0 = 4(1+.08)/.15 – .08 =$61.7
By using the above formula, we can find out other variables just by adjusting the formula.
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