Example: Calculating the Implied Growth Rate Using the Gordon Growth model
{"Image DocumentName": "Example: Calculating the Implied Growth Rate Using the Gordon Growth model", "Image ImageDescription": "Using the previous common stock example and the current stock price of  24, what is the implied growth rate? LOS: Calculate the implied growth rate of dividends using the Gordon growth model and current stock price. Pages 105 \u2013 106. The previous example demonstrated that the growth rate has a large impact on valuation. Another way to evaluate the investment attractiveness of a stock is to back out the growth rate that is implied in the current market price. The analyst would then assess whether this growth rate is reasonable. Using the previous example and the market stock price of  24, we can back out the growth rate the market is expecting for the firm\u2019s dividends. The 1.72 percent implied growth rate is quite modest. If the analyst thinks the firm can increase dividend growth beyond 1.72 percent, he or she would be favorably inclined towards the stock as an investment. Notice that the implied growth rate of 1.72 percent is lower than the previous given growth rate of 5 percent because the market stock price of  24 is less than the previous valuation of  40.38.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}