In the non-constant growth model where the first phase of growth is 5 years followed by a second phase of constant growth

Question

Quizplus · Accepted Answer

A) The formula for finding the price at the end of year 5 (P5) in a non-constant growth model is P5 = D6/(Ke - g).
B) The formula for finding the present value of a non-constant growth model where the first phase of growth is 5 years followed by a second phase of constant growth is P0 = the present value of dividends from years 1 - 5 plus the present value of P5.
C) It is likely that the growth rate during the first 5 years is higher than the company's required rate of return. This is because during the initial phase of growth, the company is in the process of expanding and investing in new projects, which often require significant capital expenditures. As these projects are completed and the company becomes more established, the growth rate may slow down to a more sustainable level.

In the Non-Constant Growth Model Where the First Phase of Growth