Skip a step in DDM valuation

CFA Level I Equities
#1

Current dividend 9.50

2 years growth at 12%

3% constant growth after

Ke is 15%

It seems that there are two methods to these valuations, and one would save time on the exam…

Method 1: 10.64/(1.15) + (11.92/(.15-.03))/1.15 = $95.63

Method 2: 10.64/(1.15) + 11.92/(1.15)^2 + (12.27/(.15-.03))/(1.15)^2 = $95.58

The answer given is $95.58.

I assume that the shortcut method is probably less accurate with longer time periods but is this OK to use for the exam or should we be using the second method?

#2

Both methods are algegraically equivalent and should produce the exact same answer. It’s likely the rounding of the dividends that’s causing the difference. With no intermediate rounding whatsoever, the PV is 95.60579

#3

Algebraically…my bad… blush

#4

Thank you