Three-Stage Free Cash Flow to Equity (FCFE) Discount Model
Originally published: 27/06/2016 11:04
Last version published: 14/12/2016 11:00
Publication number: ELQ-19773-2
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Three-Stage Free Cash Flow to Equity (FCFE) Discount Model

Value the equity in a firm with three stages of growth

Value the equity in a firm with three stages of growth (an initial period of high growth, a transition period of declining growth and a final stable period of growth) on the basis of free cashflows to equity.

User defined inputs
The user has to define the following inputs to the model:
1. Length of each growth phase
2. Growth rate in each growth phase
3. Capital Spending, Depreciation and Working Capital in each growth phase
4. Costs of Equity in each growth phase

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

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Further information

Outputs for each phase:
Growth rate
Cost of Equity
Present Value

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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