Question: 7. In a 3 stage dividend discount model, the first stage is the high growth stage and the third stage is the stable growth stage.

7. In a 3 stage dividend discount model, the first stage is the high growth stage and the third stage is the stable growth stage. Describe what happens to growth (3 points), pay-out ratio (and therefore cashflows) (3 points) and the discount rate (3 points) in the second stage. Also discuss the relationship between the change in growth rate and the change in pay-out ratio. (5 points)

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