hi all,
using the below as an example:
stock that currently pays no dividend but is expected to start paying a $1 dividend five years from now? Once the stock starts paying dividends, the dividend is expected to grow at a 5 percent annual rate. The appropriate discount rate is 12 percent.
why do i get a different ans if i set p0 to time 4 and use d1 as 1 vs using p0 to time 5 and use d1 as 1.05?
many thanks
A better question would be, “Why would you expect the answers to be the same?”
Draw timelines for each.
hi thanks for your reply.
I have done the timelines, but theoretically, its the same perpetual growing cash flow stream measured at different points, not sure why it would be valued differently?
Because the discount rate is different from the growth rate.
ah yep… silly qu in hindsight… thank you
My pleasure.