You remember that it is easy to compute a constant dividend growth model so that is your first approach. From some analysis, you decide that the required return for Northwest’s stock is 8%.
However, you realize that that Northwest has not been growing their dividends by a constant rate. Based on this you develop a forecast for Northwest’s future dividends.
Time Year Dividend
0 2017 $0.60 Actual (assume D0= $0.60)
1 2018 $0.64 Forecast
2 2019 $0.68 Forecast
3 2020 $0.72 Forecast
4 2021 $0.76 Forecast
5 2022 $0.80 Forecast
After 2022, you forecast that Northwest Savings Bank will perpetually grow their future dividends at 3% in perpetuity. Based on this non-constant dividend growth model, what price do you estimate for Northwest Savings Bank?
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