In practice, the use of the dividend discount model is refined from the method we presented in the textbook. Many analysts will estimate the dividend for the next 5 years and then estimate a perpetual growth rate at some point in the future, typically 10 years. Rather than have the dividend growth fall dramatically from the fast growth period to the perpetual growth period, linear interpolation is applied. That is, the dividend growth is projected to fall by an equal amount each year. For example, if the high growth period is 15 percent for the next 5 years and the dividends are expected to fall to a 5 percent perpetual growth rate 5 years later, the dividend growth rate would decline by 2 percent each year.

The Value Line Investment Survey provides information for investors. Below, you will find information for Boeing found in the 2009 edition of Value Line:

2008 dividend: $ 1.62
5-year dividend growth rate: 9.5%

Although Value Line does not provide a perpetual growth rate or required return, we will assume they are:
Perpetual growth rate: 5.0%
Required return: 11.0%

How sensitive is the current stock price to changes in the perpetual growth rate? Graph the current stock price against the perpetual growth rate in 11 years to find out (i.e. vary the perpetual growth rate from 0% to 15% in increments of one, calculate the price, and graph).