Question 3XYZ company has just paid a dividend of $1.15. The required rate of return on the stock is 13.4%, and investors expect the dividend to grow at a constant 8% in the future.a) Calculate the current stock value using the Gordon Constant growth model. b) Evaluate Gordons growth model and explain its limitations and why in certain situations the growth model used in part (a) will create incorrect results?
Question 3XYZ company has just paid a dividend of $1.15. The required rate of return on the stock is 13.4%, and investors expect the dividend to grow at a constant 8% in the future.a) Calculate the current stock value using the Gordon Constant growth model. b) Evaluate Gordons growth model and explain its limitations and why in certain situations the growth model used in part (a) will create incorrect results?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 16P
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Question 3
XYZ company has just paid a dividend of $1.15. The required
a) Calculate the current stock value using the
b) Evaluate Gordons growth model and explain its limitations and why in certain situations the growth model used in part (a) will create incorrect results?
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