Two-Stage Dividend Growth Model and H-Model Please use following information and solve the Two-Stage Dividend Discount Model and H-Model Problem Suppose a firm has a current dividend of D(0) = $2.00 which is expected to growth 25% a year for 3 years and thereafter grow at the rate of 5 percent with a discount rate or required rate of return of 15 percent D(0) N G1 G2 $2.00 3 25% 5% 15% DO) N G1 $5.00 3 30% 10% 20% G2 K T 1 Two-Stage Dividend Discount Model What is the value of the stock? P(O) $ 34.07 $ 87.57 D. (1+9) 1+91 P. 1- 3116 (1+g, D. (1+92) 1+k k-91 1+k K-92 2 H-Model What is the value of the stock? Year 1 Growth Rate Dividends Year 2 Year 3 Year 4 25.00% 18.33% 11.67% 5.00% 2.50 $ 2.96 $ 3.30 $ 3.47 25.00% 18.33% 11.67% 5.00% $ 2.50 $ 2.96 $ 3.30 $ 3.47 30% $ 6.50 23% $ 8.02 17% $ 9.35 10% 10.29 $ First Calculate P(3) $ 34.69 $ 102.88 PV of D(1) PV of D(2) PV of D(3) PV of P(3) $ 2.17 $ 2.24 $ 2.17 $ 22.81 $ 5.42 $ 5.57 $ 5.41 $ 59.54 P(0) = $ $ 29.39 $ 75.93