Recent Dividend, D0 = $3.00, Cоst оf stоck, rs = 12%, Nonconstаnt growth of 30% for Yeаr 0 to Yeаr 1, 25% for Year 1 to Year 2, 15% for Year 2 to Year 3, and then long-run constant growth gL = 6%. However, growth becomes constant after 3 years. •Step 1: Estimate future dividends until year N. •Step 2: Estimate the future stock price in year N when the stock becomes a constant growth stock. N can be any future time period when the stock is expected to become more mature and stable growth rate PN = DN (1 + GL) / (RS – GL) Compute the total present value of the estimated future dividends and future stock price at the cost of stock, RS.
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