Three-Stage Free Cash Flow to Equity (FCFE) Discount Model
Value the equity in a firm with three stages of growth
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Outputs for each phase:
Cost of Equity
Assumptions in the model:
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 relationship between capital spending and depreciation changes consistently with the growth rate.
-Best suited for firms with three-stage growth
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