What is the value using two stage dividend growth model

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Reference no: EM131566205

This Company you are analyzing pays dividends that have been growing at a rate of 4% per year to the current (DO) $1.05 per share. The stock is now selling for $27 per share, and you believe that an appropriate rate of return for this stock is 6.5% per year.

1. If you expect that the dividend will grow at a rate of 4% in the foreseeable future, what is the highest purchase price you would recommend to your clients?

2. With a new product line from the company you now believe that there will be a 4year period of 9.75% annual growth to be followed by a return to the historical 4% growth rate. Under these assumptions, what is the value using the 2 stage dividend growth model?

3. You Now Realize that it is likely that growth will transition from 9.75% down to 4% gradually, rather than instantaneously. If you believe that the transisiton will take 5 years, what is the stock value using the H-Model Method?

4. Instead of the 2 stage growth model, you realize that it is likely that growth is at 9.75% for 4 years followed by a reduced rate of 8% for 4 years and then to 4% for the foreseeable future. What is the stock value using the 3 step method?

Reference no: EM131566205

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