Dividend Practice Question

Beth Knight, CFA, and David Royal, CFA, are independently analyzing the value of Bishop, Inc. stock. Bishop paid a dividend of $1 last year. Knight expects the dividend to grow by 10% in each of the next 3 years after which it will grow at a constant rate of 4% per year. Royal expects a temporary growth rate of 10% followed by a constant growth rate of 6.15%, but he expects the supernormal growth to last for only 2 years. Knight estimates that the RR on Bishop stock is 9%, but Royal believes the RR is 10%. Royals valuation of Bishop stock is approximately:

A. equal to Knights valuation

B. $5 less than Knights valuation

C. $5 more than Knights valuation