Gordon Growth Model

b. calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods;

c. calculate the value of a common stock using the Gordon growth model and explain the model’s underlying assumptions;

d. calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price;

e. calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings ratio (P/E) related to PVGO;

f. calculate and interpret the justified leading and trailing P/Es using the Gordon growth model;

g. calculate the value of noncallable fixed-rate perpetual preferred stock;

h. describe strengths and limitations of the Gordon growth model and justify its selection to value a company’s common shares;

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