Chapter 18, Problem 2PS

Summary Introduction

To describe: The circumstances in which the applicability of multistage dividend discount model is more advisable than the constant growth model.yyyy13

Introduction:

Multistage dividend discount model: This model is used to calculate the intrinsic value of a stock at different growth phases of the stock. The constant growth model, or Gordon Growth Model, is a way of valuing stock. It assumes that a company's dividends are going to continue to rise at a constant growth rate indefinitely.