2. Value the common dividend foregone. In practice you will want to check the consensus EPS growth forecast and payout in order to forecast dividend growth. In June 1994 IBM was expected to keep its annual dividend of $1 for years to come. Obtain the present value of the dividend foregone. Use the same dividend dates as in (1). For (1) and (2)

you should use the IBM bond rate with the same approximate maturity7 because both dividends have negligible systematic risk. On this point see Arzac (1997).