# 1) What is the purpose of the dividend discount model? . 2) What are the advanta

1) What is the purpose of the dividend discount model? . 2) What are the advantages and the disadvantages of the method? Â  3) What are the zero-growth, the constant-growth, and the supernormal growth models under the dividend discount model? How do we proceed with each of them? Â  4) Which model would give a higher estimated value: the zero-growth model or the constant-growth model? With which model would we have a higher chance of giving a â€śbuyâ€ť recommendation for the stock? Â  5) Estimate the annual growth rate in PepsiCoâ€™s dividends over the 2008-2013 period using the data given in the case. Calculate both the arithmetic average and the geometric average annual growth rates in PepsiCoâ€™s dividends over the period, and then take the average of those two measures as your best estimate for PepsiCoâ€™s expected growth over the next 4 years (i.e. 2014-2017). 6) What are the ways to estimate the cost of common stock (i.e. or the required return on common stock)? We can use the dividend growth model formula P=D1/(r-g) to estimate the cost of common stock (r). We know PepsiCoâ€™s actual closing stock price on 12/31/2013. For, g, we can use the number that we will find in question #5. For D1, again we can use the growth number that we will find in #5. 7) Estimate the value of PepsiCo shares using the following models: The zero-growth model, The constant-growth model, The supernormal growth model 8) Based on each model, what would be our investment advice for potential investors in PepsiCo shares? Â  9. If we want to go ahead with the supernormal growth model, what would be our decision? Is the stock a good buy?â€ť Mary Ann concluded.