Question

An analyst feels that Brown Company's earnings and dividends will grow at 25% for two years, after which growth will fall to a constant rate of 6%. If the projected discount rate is 10%, and Brown's most recently paid dividend was $1, the value of Brown's stock using the multistage dividend discount model is closest to:____.

A. $31.25.
B. $33.54.
C. $36.65.

Answer 1

C. $36.65

Step-by-step explanation:

Calculation to determine what the dividend discount model is closest to:

Dividend discount model =$1(1.25) / 1.1 + [$1(1.25)2/ (0.10-0.06)] / 1.1

Dividend discount model = $36.65

Therefore the value of Brown's stock using the multistage dividend discount model is closest to:$36.65