1 Last Dividend 2 Growth Rate 3 Required Return 4 Value B $ 1.15 7% 11% ? What formula in B4 will return the intrinsic value of the constant growth stock? =B11+B2/B3-B2 -B1/(B3-B2) -B1"(1+B2)/(B3-B2) -B1*(1+B2/B3-B2) 1 Last Dividend 2 Required Return 3 Growth Rate 1 4 Growth Rate 2 5 Growth Rate 1 Time 6 Transition Period B $0.75 12% 8% 3% 5 7 ? 7 Intrinsic Value The last dividend payment of a stock was $0.75 and this dividend is expected to grow at 8% per year for three years. After that, the dividend will grow at 3% indefinitely. Assume that the transition between 8% and 3% will be gradual rather than instantaneous. The transition period is 3 years. Using the H-Model, what is the correct formula for B7 if the required rate of return on this stock is 12%? =B1/B2-B4"(1+B4+B5+B5+B6)/2"(B3-B4)) =(B1/(B2-B4)*(1+B4+(B5+B6)/2"(B3-B4))) =(B1/(B2-B4)*(1+B4+(B5+B5+B6)/2*(B3-B4))) -(B1/B2+B4)*(1-B4-(B5-B5-B6)/2"(B3+B4))) B 1.25 55% 9% 1 Next Period EPS 2 Payout Ratio 3 Required Return 4 Return on Equity 5 Growth Rate 6 Value 17% 6.00% What is the correct formula to determine the value of the stock using the Earnings Model in B6? -B1/B3+(B1*(1-B2)-(B4/B3-1))/(B3-B5) -B1/B3-(B1"(1+B2)"(B4/B3+1)]/(B3+B5) -B1-B2/B3+(B1"B2" (B4/B3-1)/(B3-B5) -B1/B3+B1"(1-B2-B4/B3-1)/(B3-B5)