FCFE (Free Cash Flow to Equity) Valuation Model

FCFE valuation model that allows you to capital R&D and deal with options in the context of a valuation model with the following assumptions:

1. The firm is expected to grow at a higher growth rate in the first period.

2. The growth rate will drop at the end of the first period to the stable growth rate.

3. The dividend payout ratio is consistent with the expected growth rate.

Option: You can make this model into a three stage model by answering yes to the question of whether you want me to adjust the inputs in the second half of the high growth period. If you do, I will adjust the growth rate, the payout ratio and the cost of equity from high-growth levels to stable growth levels gradually.

You can also make this a stable growth model by setting the high

growth period to zero.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)