The value of a supernormal growth stock is the present value of the mixed growth dividend payments and the present value of the constant-growth dividend payments.

Question

Quizplus · Accepted Answer

This statement is true. The value of a supernormal growth stock is calculated using a two-stage dividend discount model, which takes into account both the high growth period and the constant growth period. The present value of the mixed growth dividend payments during the high growth period is calculated using a higher growth rate, and the present value of the constant-growth dividend payments during the later period is calculated using a lower growth rate that is expected to be sustainable in the long term.

The Value of a Supernormal Growth Stock Is the Present