The Differential Dividend Growth Model
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Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 22 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $1.30 per share. What is the current value of one share of this stock if the required rate of return is 9.00 percent?
$79.03
$64.84
$72.62
$69.10
$78.72
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Solution Summary
Using an Excel 97-2003 spreadsheet, this solution illustrates how to compute the price of a stock when the growth rate of its dividends varies in stages. (This is called the Differential Dividend Growth Model.)
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