Assume that a U.S. equity has per share earnings estimates of $0.50 in the rst year and $1.00 in the second year with an indicated annual dividend of $0.10. Also assume that the rm has an annual growth rate of 15% and that its growth and transition stages are each two years. The rm's current payout ratio is then 20% as a result of its current annual dividend and rst year earnings of $0.50 per share (0.10/0.50= 20%). Assume that the current 10-year Treasury bond rate is 6% and that the equity risk premium is 4%. Calculate the theoretical value of the equity using the Bloomberg dividend discount model. (answer should be $10.2)

(Growth stage: varies from 3Y to 9Y; during the rst year of the growth stage, if there is an explicit EPS forecast for FY3, use that forecast; if there is no explicit forecast for FY3,

the EPS in FY3 is set as FY2(1 + long-term growth rate); during the remaining years of the growth stage earnings per share (EPS) grow at the long-term growth rate.

Transition stage: following the growth stage, the model assumes that the earnings growth rate for the rm approaches the rate that applies to the general market for all mature issues.The model applies the same linear increase or decrease to the payout ratio to arrive at the mature stage payout ratio, which defaults to 45%.)