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# Two-Stage Dividend Growth Model

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Chartreuse County Choppers, Inc. is experiencing rapid growth. The company expects dividends to grow at 30% per year for the next 8 years before leveling off at 6% into perpetuity. The required return on the company's stock is 11%. If the dividend per share just paid was \$1, what is the stock price?

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#### Solution Preview

The stock price is the present value of all dividends. Since the dividends are growing at 30% for 8 years and then have a constant growth rate, we need to calculate the dividends for each of the first eight years. From year 9, ...

#### Solution Summary

The solution explains how to calculate the stock price using the two-stage dividend growth model

\$2.19