Need help with number 12
Average Growth Rate is: 14.3367%
Required Rate of Return is : 8.7%
10. A: Two-stage Non-constant DDM: Now let’s assume that for the next four years MSFT will grow its dividends at the growth rate you estimated in (10) above. Assuming D1 = $1.84, what are the dividends for: D2 ; D3 ; D4 ; and D5 if they grow at the rate estimated in (10) above? You may round each dividend estimate to the nearest penny. (10 points)
11 B:Now, let’s assume that the dividend growth reverts back to a L-T sustainable growth rate = 6% after Year 5, that is from Year 6 to infinity. Estimate is D6 and P5.
12. C:Use the Non-constant growth DDM from the Stock Video Lecture (at 17:20) to estimate the current value of MSFT using the dividend information you found in (11) & (12) above; assume a L-T sustainable growth rate of g = 6% after Year 5; and the required rate of return found in (8). [HINT: You already have all the data, not much work left here….find the sum of the PV of the cash flows.]
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