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Variable Growth A fast growing firm recently paid a dividend of $0.50 per share. The dividend...

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Finance

Variable Growth A fast growing firm recently paid a dividend of$0.50 per share. The dividend is expected to increase at a 20percent rate for the next 3 years. Afterwards, a more stable 10percent growth rate can be assumed. If a 12 percent discount rateis appropriate for this stock, what is its value?'

Equation:

Constant growth model = P0 = D0(1+g)

                                                ________

                                                   I - g

Answer & Explanation Solved by verified expert
3.8 Ratings (508 Votes)
Step1 Dividend per share for the next 3 years Dividend in Year 0 D0 050 per share Dividend in Year 1 D1 060 per share 050 x 120 Dividend in Year 2 D2 072 per share 060 x 120    See Answer
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Transcribed Image Text

Variable Growth A fast growing firm recently paid a dividend of$0.50 per share. The dividend is expected to increase at a 20percent rate for the next 3 years. Afterwards, a more stable 10percent growth rate can be assumed. If a 12 percent discount rateis appropriate for this stock, what is its value?'Equation:Constant growth model = P0 = D0(1+g)                                                ________                                                   I - g

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