Question
Until now, we have assumed that MSFTs dividend will grow at a long-run constant rate of 4%. To gauge whether this is a reasonable assumption,
Until now, we have assumed that MSFTs dividend will grow at a long-run constant rate of 4%. To gauge whether this is a reasonable assumption, its helpful to look at MSFTs dividend history. If you go to the MSN Money website (msn.com/en-us/money/markets) and go to the annual income statement or key ratio on the financials screen, you should see the firms annual dividend over the past 4 years. On the basis of this information, what has been the average annual dividend growth rate?
On the basis of the dividend history and your assessment of MSFTs future dividend payout policies, do you think it is reasonable to assume that the constant growth model is a good proxy for intrinsic value? If not, how would you use the available data on the Internet to estimate intrinsic value using the nonconstant growth model?
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