1

2
3
4
5
6
7
8
9
10
11
12
A B C D E
Annual payment 15,000
Interest rate 10%
Number of years 5
Total value $91,576.50 #NAME?
Year
Accumulation at
beginning of
year
Payment at
end of year
Annual
interest
1 0 15,000 0.00 #NAME?
2 15,000 15,000 1,500.00 #NAME?
3 31,500 15,000 3,150.00
4 49,650 15,000 4,965.00
5 69,615 15,000 6,961.50
6 91,577
Current stock price, P
0
50
Current dividend, D
0
3
Dividend growth rate, g 5%
Cost of equity from Gordon model 11.300% #NAME?
ABC CORP.
Current dividend, D
0
5
Anticipated dividend growth rate, g 15%
Cost of equity, r
E
25%
Gordon model stock price 57.5 #NAME?
UNHEARDOF, INC.
Dividend, starting in 3 years 15
Growth rate 20%
Cost of equity 35%
Value of Dismal.com 3 years from today 15
Value of Dismal.com stock 2 years from today 100
Today's stock price 54.87 #NAME?
DISMAL.COM
Explanation: At the end of 2 years, the next dividend will be 15,
and this dividend will grow at 20% per year.Thus the Gordon
model applies, and the stock price at the end of 2 years will be
15/(0.35-0.20). Today's stock price is the price 2 years from now
discounted at the cost of equity.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
A B C D E
Year
Year-end
stock
price
Dividend
per share
Growth
rate
1986 0.40
1987 0.50 25.00% #NAME?
1988 0.50 0.00% #NAME?
1989 0.60 20.00% #NAME?
1990 0.60 0.00% #NAME?
1991 0.30 -50.00% #NAME?
1992 0.30 0.00%
1993 0.33 10.00%
1994 0.45 36.36%
1995 1.00 122.22%
1996 35.00 1.40 40.00%
Compound growth, 10 yr. 13.35% #NAME?
Compound growth, 5 yr. 36.08% #NAME?
Gordon model
P
0
35.00 <-- Ending 1996 share price
D
0
1.40 <-- 1996 dividend
r
E
10-yr. growth 17.88% #NAME?
5-yr. growth 41.53% #NAME?
CHRYSLER CORPORATION (C)
1
2
3
4
5
6
7
8
9
A B C
Current stock price, P
0
65.00
Current dividend per share 3.00
High growth rate, g
high
23.00%
Number of high-growth years, m 5
Normal growth rate, g
normal
5%
Cost of equity, r
E
using the function twostagegordon #NAME? #NAME?
TRANSCONTINENTAL AIRWAYS
Current dividend 3.00 Dividend valuation
Growth rate g
1
, years 1-10 ("supernormal") 15% PV of years 1-10 34.79
Growth rate g
2
, years 11 - 10%
PV of years 11 -
214.92
Cost of equity 12% Share value 249.72
Year
1 3.45 #NAME?
2 3.97 #NAME?
3 4.56 #NAME?
4 5.25 #NAME?
5 6.03
6 6.94
7 7.98
8 9.18
9 10.55 #NAME?
10 12.14 #NAME?
11 13.35 #NAME?
12 14.69
13 16.15
14 17.77
15 19.55
16 21.50
ABC Corp ("supernormal" growth)
#NAME?
#NAME?
#NAME?