1 Problem 7-8 2 3 Common stock value: Constant growth. Use the constant-growth dividend model (Gordon growth model) to find the value of each firm shown in the following table. 4 5 6 Dividend expected next year $1.20 4.00 0.65 6.00 2.25 Firm A B C D E Dividend growth rate 8% 5 10 8 7 Required return 13% 15 14 9 20 8 9 9 10 8 11 12 Solution 13 14 15 16 Stock A Dividend expected next yea $1.20 Dividend growth rate Required return Stock value 8% 13% 17 18 19 20 Stock B 12 Solution 13 14 15 16 Stock A Dividend expected next yea $1.20 Dividend growth rate Required return Stock value 8% 13% 17 18 19 20 21 22 Stock B Dividend expected next yea $4.00 Dividend growth rate Required return Stock value 5% 15% 23 24 25 26 27 28 29 30 Stock C Dividend expected next yea $0.65 Dividend growth rate Required return Stock value 10% 14% 31 32 33 Stock D Dividend expected next yea $6.00 Dividend growth rate 34 8% Problem 7-8 A B D E F G H I J K 32 33 34 Stock D Dividend expected next yea $6.00 Dividend growth rate Required return Stock value 8% 9% 35 36 37 38 39 40 41 42 Stock E Dividend expected next yea $2.25 Dividend growth rate 8% Required return 20% Stock value 43 44 45 Requirements 46 1 In cell E18, by using cell references to the given data, calculate the value of stock A. 2 In cell E24, by using cell references to the given data, calculate the value of stock B. 3 In cell E30, by using cell references to the given data, calculate the value of stock C. 4 In cell E36, by using cell references to the given data, calculate the value of stock D. 5 In cell E42, by using cell references to the given data, calculate the value of stock E. 6 Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed. 47 48 Points 1 1 1 1 1 0 49 50 51 52