
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Assume that the first 5 years is the first stage and, years thereafter is the second stage of growth.

Transcribed Image Text:### Dividend Growth Model Analysis
#### Input and Calculation Table
| | | | | | |
|---|---|---|---|---|---|
|1. | **Current dividend =** | | | |
|2. | **First-stage growth =** | | | |
|3. | **Second-stage growth =** | | | |
|4. | **Discount rate =** | | | |
| | | | | | |
|7. | **Year** | **1** | **2** | **3** | **4** | **5** |
|8. | **Projected dividend** | | | | | |
| | | | | | |
|10. | **Present value =** | | | | |
| | | | | **Terminal price =** | | |
### Questions
a. What is the value of the stock if the current dividend is $1.30, the first stage growth is 18 percent, the second stage growth is 9 percent, and the discount rate is 11 percent?
b. What is the value of the stock if the current dividend is $1.30, the first stage growth is 2 percent, the second stage growth is 8 percent, and the discount rate is 9.5 percent?
c. What is the value of the stock if the current dividend is $2.50, the first stage growth is 15 percent, the second stage growth is 7 percent, and the discount rate is 10 percent?
### Explanation
This table and set of questions are designed to analyze the future value of a stock based on current dividends, growth rates, and a discount rate. By filling in the table, one can project dividends over a specified number of years and calculate the present value. The "Terminal price" represents the stock's value at the end of the projection period, reflecting long-term growth expectations.

Transcribed Image Text:The image presents a table designed for a spreadsheet problem focused on computing the value of a variable growth rate firm over a five-year horizon. Here is the transcribed content:
**8-38 Spreadsheet Problem**
Design a spreadsheet similar to the one below to compute the value of a variable growth rate firm over a five-year horizon.
---
| | A | B | C | D | E | F |
|-----|------------|-------|----|----|----|----------------|
| 1 | **Inputs** | | | | | |
| 2 | Current dividend = | | | | | |
| 3 | First-stage growth = | | | | | |
| 4 | Second-stage growth = | | | | | |
| 5 | Discount rate = | | | | | |
| 6 | | | | | | |
| 7 | **Year** | 1 | 2 | 3 | 4 | 5 |
| 8 | Projected dividend | | | | | Terminal price = |
* **Inputs Section (Rows 1-5):** This section is provided to enter financial inputs necessary for the calculations:
- Current dividend
- First-stage growth rate
- Second-stage growth rate
- Discount rate
* **Year and Projection Section (Rows 7-8):** This part of the table includes:
- Year numbers (1 through 5) to project dividends for each respective year.
- A space to enter projected dividend amounts for each year and a terminal price for the final year.
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