Fastenal, a publicly traded distributor, has been paying dividends since $1991.$ Between $1991$ and $2010,$ dividends grew by $49\%$ annually, on average. Since $2010,$ the dividend growth slowed down significantly to $18\%$ a year.

The dividend in $2023,$ or D$0,$ equals $$1\mathrm{.}78.$ We estimate that starting in $2024,$ the dividend growth will slow down to $10\%$ for the next five years, and after that will remain at $5\%$ indefinitely.

If the interest rate is $9\%,$ calculate Fastenal's stock price as of today using the non$-$constant dividend growth method:

Calculate dividends for years $1$ through $5$ using the high growth rate $(10\%)$

Calculate present value of dividends for years $1$ through $5$ using the required return rate of $9\%$

Calculate dividend in year $6$ using the constant growth rate $(5\%)$

Calculate P$5$ using the formula in cell G$23$

This is the stock price five years in the future, so it needs to be discounted. Calculate its present value as of today

Add up present values of dividends for years $1$ through $5$

Sum up $(5)$ and $(6)$ to calculate present value of the stock today

Two$-$Stage Value of Stock

$2$nd Stage