25. Program your own two-stage growth model for two years of super normal growth

(g1) followed by normal growth (g2) lasting forever. Treat both growth rates, the last dividend (D0), and the required rate of return (k) as inputs. Here’s how to do it. (Refer to Figure 8.2 and Example 8.5 on pages 338–339. You’ll be programming exactly that procedure.)

1.. Lay out four cells horizontally in your spreadsheet (to represent a time line starting with time zero).

2.. Put D0 in the first cell.

3.. Form the next two cells by multiplying the one before by (1  g1).

4.. Form the fourth cell by multiplying the third by (1  g2).

5.. Calculate P2 in another cell using the Gordon model with the fourth cell in the numerator and (k  g2) in the denominator.

6.. Form P0 as the sum of the present values of the middle two cells in the time line and the present value of the cell carrying P2.