LONG TERM FINANCING: STOCK VALUATION PROBLEM -
Two Stage Dividend Discount Model: Allied Equipment Plc. a producer of agricultural farming materials and equipment has paid constant quarterly dividends for the years. However, recently its dividend growth slowed in the 2017 fiscal year, thereby making a one-stage dividend model unsuitable for accurate valuation.
This company's dividend growth rate in 2013 - 2016 was 8%, and its 2017 growth rate is 4% and the required rate of return by an investor on this stock is 12%. The company paid a dividend of $1.50 in 2013.
a) What is distinct with the dividend discount model?
b) Calculate the value of the company's stock.
c) How was the PV obtained?
d) Determine the PV of the future dividends at the 4% growth rate and compare your result.