TPPY investment in research and development has given it a technological and cost advantage in manufacturing a previously difficult to make electronic component. The firm is now experiencing rapid growth due to the advantages it now enjoys over its competitors. It estimates growth rates of 12% next year, 10% in the following year and 9 % the year after that. It believes that its competitors would have improved their own processes by the fourth year, at which time it expects its growth rates to decrease to a constant rate of 4% thereafter. Its last dividend was $1.80 per share. Assume the cost of equity is 15%. 

i. What is the value of the stock today P0?

 ii. What is the value of the stock one year from today P1?

iii. What is the value of the stock two years from today?

Answer rating: 100% (QA)

To calculate the value of the stock using the dividend discount model DDM we need to determine the p... View the full answer