D0=1.32
D1=1.32?1.3=1.716
D2=1.716?1.1=1.8876
D3n=1.8876?1.05≈1.98198
Take core Gordon' model (Dividend growth/discount model) for D2:
PV{y2} = D°?(1+r)/(r-g) = 1.32?1.3?1.1?1.05/(0.09-0.05) ≈ 49.5495
Convert it into PV{year0} = 49.5495 / 1.092 ≈ 41.7048
Add PV components for first 2 years: PVx = (1.32?1.3/1.09)?(1 + 1.1/1.09) ≈ 3.163067
Get the total: P ≈ 41.7048 + 3.163067 ≈ $ 44.8678899
Therefore in accordance to Gordon growth model (Dividend discount model) price would be: P ≈ $ 44.868
Nachman Industries just paid a dividend of D(0)= $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%.
