The Gordon Growth Model: A Teaching Case

Abstract

This case illustrates how the Gordon Growth Model is employed to estimate the value of a firm’s stock.  The model determines the value of stock based on dividends, growth rate, and the cost of capital. The Capital Asset Pricing Model (CAPM) is employed to calculate the cost of capital.  Both economic analysis and ratio analysis are used to examine the impact of external and internal factors on share worth.  The case discusses why the market share price may vary from an estimation of its worth. This case study can be used in an Introduction to Investments course, an Advanced Investments course, or a first level MBA graduate course.