Write a user-defined function to calculate the last dividend payment (D0) using the two-stage growth model as defined by (9-5) on page 260. The formula is:

Question

The function should be named TwoStageDiv, and will need to accept five arguments: the initial growth rate (g1), the period of time that dividends will grow at this initial rate (n), the dividend growth rate for the remainder of time (g2), the required rate of return (kCS), and the price of the share of stock today (VCS). Use the formula to find the solution given the following data: the price of the share of stock today is $20; the initial growth rate is 15% during the first five years. The growth rate will then decline to 8% indefinitely. The required rate of return is 12%.

Answer 1

Public Function TwoStageDiv(ReqRate As Single, Growth1 As Single, Growth2 As Single, Growth1Time As Single, CurrentPrice As Single) as Single

'Problem 2 code to calculate Div0 using the two-stage model

Dim Denom1 As Single, Denom2 As Single

Denom1 = (1 + Growth1) / (ReqRate - Growth1) * (1 - ((1 + Growth1) / (1 + ReqRate)) ^ Growth1Time)

Denom2 = (1 + Growth1) ^ Growth1Time * (1 + Growth2) / ((ReqRate - Growth2) * (1 + ReqRate) ^ Growth1Time)

TwoStageDiv = CurrentPrice / (Denom1 + Denom2)

End Function