PLEASE ONLY DO PART 3!

Part B: Non-constant Growth Stock Valuation

Part I: ROW 1

The following information represents the base case for a stock: D₀=$1.50, r=10%, and

g= 2% is the steady-state growth rate. This stock does NOT have high growth stage. Calculate the stocks value.

Part II: ROW 2-5

Now calculate the value of the stocks while assuming there is a high growth rate before the steady state begins.

Row	D0	r	High growth stage: g and number of peroids	STEADY STATE GROWTH RATE	Stock Value
1	$1.50	10%	none	2%
2	$1.50	10%	5% for 2 periods	2%
3	$1.50	10%	5% for 4 periods	2%
4	$1.50	10%	10% for 2 periods	2%
5	$1.50	10%	10% for 4 periods	2%

Part III.

Answer the following questions based on your answers above.

1. In general, how does a period of positive non-constant growth higher than the constant growth rate affect the stock's value? Why? How would negative non-constant growth affect the stock's value? Why?

2. How does the number of years of non-constant growth affect value? Why?

3. How does the rate of growth affect value? Why?

4. How do the number of years of non-constant growth combined with the rate of growth affect value?

5. What factors may cause a stock to have positive or negative non-constant growth? Can these factors last forever?