1. You are analyzing the cost of capital for Microsoft Corporation, which develops software operating systems for computers. The firm's dividend growth rate has been a very constant 3 percent per year for the past 15 years. Competition for the firm's current products is expected to develop in the next year, and Microsoft is currently expanding its revenue stream into the multimedia industry. Evaluate the appropriateness of continuing to use a 3 percent growth rate in dividends for Microsoft in your cost of capital model.
2. You are an external financial analyst evaluating the merits of a stock. Since you are using a dividend discount model approach to calculate a cost of equity capital, you need to estimate the dividend growth rate for the firm in the future. Describe how you might go about that process.
Just need logical explanation, don't make any blender just the point need answer.