Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock. (8 marks) Refer Stock Characteristics and Valuation - Dividend policy Step 1: Calculate D1 = D. (1 + g) ? Calculate D2 = D1 (1 + 9)? Calculate D3 = D2 (1 + g)? Step 2: Calculate the value of the expected stock price: P2 = D3/(r-9) = ? Step 3: Calculate the Present Value of the expected future cash flows: NOTE: Use the non-constant growth model. Take note that variable N is reference to the Horizontal date or Terminal date, which beyond this date, the dividend growth is going to be constant. So, in this problem, the N value will be 2. Po = D1/(1+01+ (D2 + P2)/(1+r)N =