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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 11P
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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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