XYZ 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.Calculate the current stock value using the Gordon Constant growth model. Evaluate Gordons growth model focusing on its limitations and why in certain situations this growth model will create incorrect results?

Question
Asked Oct 17, 2019

XYZ 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.

  1. Calculate the current stock value using the Gordon Constant growth model. 
  2. Evaluate Gordons growth model focusing on its limitations and why in certain situations this growth model will create incorrect results? 
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Expert Answer

Step 1

1.

Calculation of Current Stock Value:

The current stock value is $21.30.

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