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Common stock valuelong dash—Constant growth   Use the​ constant-growth model​ (Gordon model) to find the value of...

Common stock

valuelong dash—Constant growth   Use the​ constant-growth model​ (Gordon model) to find the value of each firm shown in the following​ table:  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

Firm

Dividend expected next year

Dividend growth rate

Required return

A

​$1.201.20

8.08.0​%

13.013.0​%

B

4.004.00

5.05.0

15.015.0

C

0.650.65

10.010.0

14.014.0

D

6.006.00

8.08.0

9.09.0

E

2.252.25

8.08.0

20.020.0

Solutions

Expert Solution

Value of the firm = Expected dividend /(required rate - growth rate)
Firm Dividend expected next year Dividend growth rate Required return Value of the firm
A 1.20 8.00% 13.00% $                     24.00
B 4.00 5.00% 15.00% $                     40.00
C 0.65 10.00% 14.00% $                     16.25
D 6.00 8.00% 9.00% $                  600.00
E 2.25 8.00% 20.00% $                     18.75

jeff jeffy answered 1 year ago
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