Nonconstant growth Year 3 Dividend, D3 $1.50 Supernormal growth rate, gs 23.00% Normal growth rate, gn 9.00% Required return, rs 17.00% 23.00% 23.00% 9.00% 0 1 2 3 4 5 6 Dividends 0 0 $1.50 $1.73 $1.96 $2.05 P5 $25.63 Cash flows to common stockholders 0 0 $1.50 $1.73 $27.59 PV of cash flows to common stockholders $0.00 $0.00 $1.16 Stock Price, P0 Alternatively, using Excel NPV function: Stock Price, P0 Formulas 23.00% 23.00% 9.00% 0 1 2 3 4 5 6 Dividends 0 0 $1.5000 =F9+F7 =G9+G7 =H9+H7 P5 =I9/(B6-B5) Cash flows to common stockholders 0 0 =F9+F10 =G9+G10 =H9+H10 PV of cash flows to common stockholders =D11/(1+B6) =E9+E10 =F11/(1+$B$5)^F8 #N/A #N/A Stock Price, P0 #N/A Alternatively, using Excel NPV function: Stock Price, P0 #N/A