The value of expected dividends in the H model can be
written as:
where
P 0 = Value of the firm now per share
DPSt= DPS in yeart
ke= Cost of equity
ga= Growth rate initially
gn = Growth rate at end of 2H years, applies forever
afterward
Thismodelavoidstheproblemsassociatedwiththegrowth
ratedroppingprecipitouslyfromthehigh-growthphasetothe
stable-growthphase,butitdoessoatacost.First,thedecline
inthegrowthrateisexpectedtofollowthestrictstructurelaid
out in the model—it dropsin linear increments each year