Discounted Cash Flow Method

Three$-$Stage Dividend Discount Model:

A three$-$stage dividend model can be used to estimate the value of a firm that is projected to have three stages of growth with a fixed rate of growth for each stage.

Example: $R$ & $M$ has a current dividend of $$1$ and a required rate of return of $12\%.$ A dividend growth rate of $15\%$ is projected for the next two years, followed by a $10\%$ growth rate for the next four years, before settling down to a constant $4\%$ growth rate thereafter.

Calculate the current value of $R$&$M.$