This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: b. Suppose now that you believe that the companys new product line will cause much higher growth in the near future. Your new estimate is for a three-year period of 20% annual growth to be followed by a return to the historical 8% growth rate. Under these new assumptions, what is the value of the stock using the two-stage dividend growth model? c. You now realize that it is likely that the growth will transition from 20% down to 8% gradually, rather than instantaneously. If you believe that this transition will take five years, what is the value of the stock today? Use the three-stage growth model. Worksheet: Formulas:...
View Full Document
This note was uploaded on 02/14/2011 for the course FINANCE 615 taught by Professor Green during the Fall '09 term at UMBC.
- Fall '09