Question

What conditions must exist to use the Gordon Growth Model for valuing a company’s stock? Are these conditions present for Sal Song Industries? Explain.

Answer 1

The Gordon Growth Model is used to value a company's stock based on its expected future dividends. Certain conditions must be present, such as consistent dividends, predictable growth rate, and a required rate of return greater than the dividend growth rate. Without specific information about Sal Song Industries, it is not possible to determine if these conditions are present for the company.

Step-by-step explanation:

The Gordon Growth Model is used to value a company's stock based on its expected future dividends. This model assumes that the company pays out a constant dividend each year and that the dividends grow at a constant rate indefinitely. To apply the Gordon Growth Model, the following conditions must be present:

1. The company pays dividends consistently.
2. The dividends have a predictable growth rate.
3. The required rate of return is greater than the dividend growth rate.

Without specific information about Sal Song Industries, it is not possible to determine if these conditions are present for the company. You would need to gather data on the company's dividend history and growth rate, as well as estimate the required rate of return, to apply the Gordon Growth Model accurately for valuing Sal Song Industries' stock.