Assume a stock should be valued with the two-stage dividend growth model. All else the same, a decrease in the length of the first stage dividend growth would:

Question

Quizplus · Accepted Answer

Decreasing the length of the first stage in a two-stage dividend growth model would decrease the stock price only if the first stage growth rate is greater than the second stage growth rate. This is because the high-growth period is shortened, reducing the overall present value of future dividends compared to a longer high-growth period.

Assume a Stock Should Be Valued with the Two-Stage Dividend