Super Growth DDM

Trying to improve my speed by entering these cash flows using the CF function of my calculator. The question is as follows. Corp A is expected to pay a dividend of 2.25 per share this year. Sales and profit for Corp A are forecast to grow @ 20% for 2 years after that, then grow @ 5% per year forever. Dividend and sales growth are expected to be equal. If Corp A’s Shareholders require a 15% return, what is the per-share value of Corp A’s common stock based on the dividend discount model. A) 22.75 B) 26.00 c) 28.5 D)39.25 I see this (and the schweser solution agrees) as having 3 cash values. CF0 = 0 CF1 = 2.25 CF2 = 2.25*1.2 CF2 = 2.25*1.2^2 / .15 - .1 (as per usual with the constant growth dividend discount model) so if i enter these into the calculator and solve for npv w/ the irr = 15, i get 25.30 which is obviously wrong. This problem can be done in this manner right? Thanks much.

I’m getting 30.5217 D1 = 2.7 D2 = 3.24 P2 = 3.402/(.15-.05) = 34.02 Required rate: 15%

(Above the second CF2 should be CF3) it’s not too hard to discount the cash flows, but it’s not as fast as punching them in. what about the original 2.25 as CF1? P0 = 2.25/1.15 + 2.25*1.2 / (1.15)^2 + 34.02 / (1.2)^2 = 28.5 (answer from the book) but…i keep getting about 26.33 Not sure what’s going on here, can anyone weigh in on whether or not this can be done using the CF keys? Or if the answer from the book is wrong…

i always stick to the manual way when calculating DDM, super growth or whatever else…

Haha, oh man did I mess this one up. I coulda sworn it said they paid 2.25 out already. I think the cough meds are kicking in.

How did you find the 34.02 for the price?

You just do the ddm w/ consistent growth equation. D3/ K - g that gives you the price if the dividend stopped growing @ 20% and continued forever growing @ 5. This is your last cash flow. Does anyone know how to do this in the calc? I’m too good at screwing up small things to risk this. Thanks