Final answer:
The Dividend Discount Model (DDM) values a stock based on future dividends, and the Two-Stage DDM is used for companies with rapid initial growth followed by stable growth. Two-stages involve an initial high growth period and a following stable growth phase.
Step-by-step explanation:
The Dividend Discount Model (DDM) is a method used in finance to value a company's stock based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In situations where a company is experiencing rapid growth, the Two-Stage DDM can be applied which involves the following options:
- High growth period: The company is expected to grow at a higher-than-average rate for a set period.
- Stable growth period: It is assumed that after the initial high growth period, the company will slow down to a stable growth rate indefinitely.
It is important to accurately estimate the growth rates and duration of each stage to value the company properly using Two-Stage DDM.