Question
You are given the five year (Years 1-5) dividend growth rate of 12.0% and the constant dividend growth rate of 5% which begins in year
You are given the five year (Years 1-5) dividend growth rate of 12.0% and the constant dividend growth rate of 5% which begins in year 11. You are to decrease the dividend growth rate by an equal percentage each year from year 5 to year 11 to decrease the rate from 12.0% to 5.0%. Construct the table in Excel to show the dividend growth rate and dividend each year for the next 11 years beginning with the 2014 dividend (Year 0). Using the table, calculate the price of the stock at Year 10 and the stock price today in Excel. Assume required return is 11%. Construct a table depicting differing constant growth rates (the rate which begins in year 11) ranging from 0% to 10% and for each constant growth rate calculate the price of the stock today. On the same tab as the data, graph the stock price (vertical axis) vs the growth rate (horizontal axis).
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