Question
After looking at the Gordon model derivation, Picture 2. The illustration is Picture 1 in the question. Valuing Common Stock with Nonconstant Growth, which demonstrates
After looking at the Gordon model derivation, Picture 2. The illustration is Picture 1 in the question.
Valuing Common Stock with Nonconstant Growth, which demonstrates a case where a company pays dividend [Do] of $2.00 this year, and increase the dividend amount at a supernormal growth rate of g=30% for the next 3 years, and then back to the normal g=6% from year 4 till infinity. Now, based on this illustration, you are to calculate the stock value of another company if it pays nothing for the first 3 years [D1=D2=D3=$0.00], and then pays $2.00 at yr 4, and then at a supernormal growth rate of g=30% for yr5, yr 6, and yr7; and then back to the normal growth rate of g=6% from yr 8 on till infinity. Start with a timeline and show the full procedure to show your answer.
Valuing Common Stock with Nonconstant Growth Do = $2.00. 0 F = 13% 1 ? g= 30% g= 30% g = 30% 3.380 ig = 6% 1 4.394 2.600 4.658 2.301 2.647 3.045 46.114 54.107 = P. P = 4.658 S =$66.54 0.13-0.06 GORDON MODEL > Do g rs Dolu Poe TAY Dolit Dolap WY) (Y) Wol No A1977 ) (+Y) ()-112 hogy ha -Po = Do - Doctors POCHES -1) = Ds [ 1 (one) e coco 18 > J > become zero penting Da Do Po Do xlty - DI
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