can anyone solve for this problem step by step accounding to the second picture ?...
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can anyone solve for this problem step by step accounding to the second picture ?
Variable Growth Model: Example A multiple-growth rate company pays a current dividend of $1 and is expected to grow at the higher rate of 40% a year for three years, at the end of which time the new growth rate is expected to be a constant 8% per year. The required rate of return is 12%. What is the intrinsic value of the firm? DDM: Variable Growth Model If two (or more) growth rates are given in the problem, it is a multiple growth rate problem. To solve it, 1. First determine the actual dollar dividend for each year of the high growth rate period 2. Take the present value of each of these dividends, using the required rate of return as the discount rate 3. Add the present values together to obtain the PV of the first n years of dividends (High growth period) 4. Solve for the constant growth value of the stock using the second growth rate. To do this, take the last dividend computed above for the high growth period and compound it up by the new (lower) growth rate. 5. Discount this price back to the present. (If the high growth is for 3 years, discount back for 3 periods; if for 10 years, 10 periods... 6. Add the two values together
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