Assume that a company paid a dividend of 60 cents in 2000 which will grow annually by 15% during 2001 to 2005. And from 2006 the dividend steadily grow with a long-term constant growth rate of 3%. Build a two-stage dividend growth model that captures both the high growth and constant growth. The cost of equity is 11%. The market value of a share of the company is $10. Is the stock fairly valued?

Answer rating: 100% (QA)

TwoStage Dividend Growth Model DDM for the Company Stage 1 High Growth 2001 2005 Years 5 years ... View the full answer