Purchase Solution

Two-Stage Dividend Growth Model

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution
Solution Summary

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

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, ...

Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • What is expected annual dividend growth rate

    The model you would need to apply to solve this problem is based on the Two-stage Dividend Growth Model. TThe model you would need to apply to solve this problem is based on the Two-stage Dividend Growth Model.

  • Sundanci, INC.

    RATE OF INDUSTRY = 13% INDUSTRY P/E Ratio = 26 Two-stage Dividend Discount Model D0 = most recent dividend gS = supernormal growth for N years gL = constant growth after year N to infinity Vn = D0(1 + gS)n(1 + gL) r - gL Vn = $0.286(1 + 0.32

  • Excel Corporation Stock valuation: Compute value of one share

    I solved this problem using the Two-Stage Dividend Growth Model, which combines a discounted cash flow model and the Gordon Dividend Growth Model. This solution illustrates how to apply the Two-Stage Dividend Growth Model to compute a stock price.

  • Valuation Problem

    The two stage model is a variation of DDM, and we use that only if the future growth rate is not constant (for example, from year 1 to year 10, growth rate is 10%, after that growth rate is 5%).

  • Two Stage Dividend Growth Model

    574459 Two Stage Dividend Growth Model I need some help for this case study: IBM has generated annual dividend growth of 15.1% over the past 3 years. IBM's most recent annual dividend is $2.90.

  • Evaluation of a company: three-stage dividend growth model with declining growth

    16196 Evaluation of a company: three-stage dividend growth model with declining growth I am evaluating a firm using the three-stage dividend growth model with a linearly declining growth rate in Stage 2.

  • application of the two-stage dividend growth model

    An application of the two-stage dividend growth model is featured.

  • Formula 51 Corp.

    303940 Two-Stage Dividend Growth Model Formula 51 Corp. just paid a dividend of $1.45 per share. The dividends are expected to grow at 30 percent for the next eight years and then level off to a 7 percent growth rate indefinitely.

  • Finance scenarios; stock prices

    Use the dividend discount model to get the required return. The formual for dividend discount model is Required Return ke = D1/Price + g Ke = 3.80/50+0.04 Ke=11.6% 11.) Tom Busby owes $20,000 now.

View More Related Solutions