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Two-Stage Dividend Growth Firm X just paid a dividend of $2.50 today. Suppose that the firms dividend is expected to grow at a rate of
Two-Stage Dividend Growth
Firm X just paid a dividend of $2.50 today. Suppose that the firms dividend is expected to grow at a rate of 18 percent per year for the next three years. After that, dividend growth is expected to slow to 3 percent per year and remain at that level into the foreseeable future. If Firm Xs required return on equity is 11 percent, estimate the intrinsic value of Firm Xs common shares today based on the two-stage growth model.
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