Multi-period DDM

CFA Level I
#1

Hi, what is the value of the stock in this multi-year divi discount example?

  • Last year’s dividend was $1.62.
  • The dividend is expected to grow at 12% for three years.
  • The growth rate of dividends after three years is expected to stabilize at 4%.
  • The required return for Computech’s common stock is 15%

Thanks

#2

Y1=1.62 × 1.12/1.15=1.58

Y2=1.62×1.12^2/1.15^2=1.54

Y3=1.62×1.12^3/1.15^3=1.50

Y4=1.62×1.12^3×1.04/(0.15-0.04)/1.15^4=12.30

value=1.58+1.54+1.50+12.30=16.92

#3

I got $18.77

Y1=1.62 × 1.12/1.15=1.57

Y2=1.62×1.12^2/1.15^2=1.53

Y3=1.62×1.12^3/1.15^3=1.50

Y4=1.62×1.12^3×1.04=2.37

2.37/(.15-.04)=21.55 —> 21.55/1.12^3

value=1.57+1.54+1.50+14.17 = $18.77

#4

I got $18.77

Y1=1.62 × 1.12/1.15=1.57

Y2=1.62×1.12^2/1.15^2=1.53

Y3=1.62×1.12^3/1.15^3=1.50

Y4=1.62×1.12^3×1.04=2.37

2.37/(.15-.04)=21.55 —> 21.55/1.12^3

value=1.57+1.54+1.50+14.17 = $18.77

#5

FTFY