The H-model applies to firms where the dividend growth rate is expected to decline linearly over the high-growth stage until it reaches its long-run average growth rate. This most closely matches the anticipated pattern of growth for Reality Productions.
The H-model can be rewritten in terms of r and used to solve for r given the other model inputs:
r = D0 / P0 × [(1 + gL) × [H × (gS − gL)] + gL
Here, r = 1.5 / 30 × [(1 + 0.05) + [(6.0 / 2) × (0.10 − 0.05)] + 0.05 = 0.1
