Question

Oh on SUPERNORMAL GROWTH DO $2.00 POD Cost of Equity 12.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% D101 5.00% P100 be D9 Assume KTS currently pays a $2 per share dividend and has a cost of equity of 15%. 1) What is the value today of KTS stock if it grows at 10% for 5 years, then 8% for 3 years, then 6% for 2 years and then grows at 5% thereafter?
Below is the filled out supernormal growth chart, but it may need to be changed because the cost of equity is supposed to be 15% for the question.

Answer 1

Attaching the snapshot from excel sheets, which contains the entire solution for the problem.

I have attached two screen-shots - One having the final values and the other one showing formulas behind the calculation.

в с D E F PO 27.1939 Year Discount rate (Cost of Equity) Discounted Cash Flows Cost of Equity $2.00 15% 10% 10% 10% 10% 10% 8% 8% 8% 6% 6% 5% D1 2.2000 1 D2 2.4200 2 D3 2.6620 3 D4 2.9282 4 D5 3.2210 5 D6 3.4787 6 D7 3.75707 D8 4.0576 8 D9 4.3010 9 010 4.5591 10 P10 47.8703 10 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.2472 1.9130 1.8299 1.7503 1.6742 1.6014 1.5039 1.4124 1.3264 1.2226 1.1269 11.8328

PO SUM(H4:H14) Year Discount rate (Cost of Equity) Discounted Cash Flows DO Cost of Equity 0.1 D1 D2 0.1 0.08 0.08 0.08 0.06 0.06 0.05 D6 D7 D8 D9 D10 P10 =C2*(1+C4) 1 =E4*(1+C5) 2 =E5*(1+C6) =E6*(1+07) =E7*(1+08) =E8*(1+09) 6 =E9*(1+C10) 7 =E10*(1+C11) 8 =E11*(1+C12) 9 =E12*(1+C13) 10 =((E13)*(1+C14)), 10 =1/(1+$C$3)^F4 =1/(1+$C$3)^F5 =1/(1+$C$3)^F6 =1/(1+$C$3)^F7 =1/(1+$C$3)^F8 =1/(1+$C$3)^F9 =1/(1+$C$3)^F10 =1/(1+$C$3)^F11 =1/(1+$C$3)^F12 =1/(1+$C$3)^F13 =1/(1+$C$3)^F14 =G4*E4 =G5*E5 =G6*E6 =G7*E7 =G8*E8 =G9*E9 =G10*E10 =G11*E11 =G12*E12 =G13*E13 =G14*E14 15

Hence, value of the Stock today = $ 27.19