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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