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    2-stage Dividend Discount Model

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    Using 2-stage DDM and CAPM to value stocks:

    Beta of company: 1.15
    Market price: $30
    Intrinsic value: ?
    Risk-free rate 4.50%
    Expected market return: 14.5%

    EPS and dividend growth rates for first 3 years: 12% per year
    EPS and dividend growth rates thereafter: 9% per year

    Estimate the intrinsic value oif the company using the data and the 2-stage dividend discount model.

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    https://brainmass.com/business/capital-asset-pricing-model/2-stage-dividend-discount-model-16182

    Solution Preview

    Please refer to the attachment.
    <br>
    <br>Start with the CAPM:
    <br>Expected rate of return of the company is
    <br>K= Rf + beta (Rm - Rf)= 4.5+1.15*(14.5-4.5)=16%
    <br>
    <br>Since we are going to use the 2-stage dividend discount model, here one key information is missing: the current dividend value D0.(or even the dividend payout ratio will ...

    Solution Summary

    2-stage Dividend Discount Model is listed.

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