ga= Growth rate in high-growth phase (lastsn1 periods)
gn= Growth rate in stable phase
Πa= Payout ratio in high-growth phase
Πn= Payout ratio in stable-growth phase
ke=Costofequityin high-growth(hg),transition(tr),and
stable-growth (st)
FIGURE5.3ExpectedGrowthintheThree-StageDividend
Discount Model
Thismodel’sflexibilitymakesitausefulmodelforanyfirm,
whichinadditiontochanginggrowthovertimeisexpectedto
change on otherdimensions aswell—in particular, payout
policies and risk. Practically speaking, this is the more
appropriate model to use for a firm whose earnings are
growing at very high rates,