The Gordon Model

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Coursework Assignment Number 1

The Gordon Model is particularly useful since it includes the ability to price in the growth rate of dividends over the long term. It is important to remember that the price result of the Constant Dividend Growth Model assumes that the growth rate of the dividends over time will remain constant. This is a difficult assumption to accept in real life conditions, but knowing that the result is dependent on the growth rate allows us to conduct sensitivity analysis to test the potential error should the growth rate be different than anticipated.

estimate of the present value of shares in Latrike plc

The following table is a record of dividends for a pharmaceutical company Latrike plc.

|Dividend per
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The market price fluctuations around the intrinsic value, and this pricing model includes prediction of g and r. It may deviate from the market price. And this model also neglected the stock market for stock price influence, just make investors can determine whether a from the current market conditions affect the company 's absolute value.

Valuation model have not considered the existence of non-tradable shares. The dividend discount model valuation is the discounted value of the dividend per share to all stocks equally.

Valuation model is effective need an effective market. Valuation model of clear operation is conditional: one is the information fully, timely, truly get public; The second is the information can be investors to get, and investors can make reasonable judgment from information; Thirdly it is investors according to the judgment to make accurate, timely action. It means valuation model requires an effective market.

Accounting data reflect the deviation of information. Discounted cash flow model valuation do not need accounting earnings but actually produced from the company 's cash flow. However, numerously use a discounted cash flow model plus the cost of non-cash outflow for the "cash flow" data on the basis of the accounting surplus.

Limited the scope of the dividend growth model. Dividend growth model application of the hypothesis is a project or enterprise management
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