Gordon Growth Model

The Gordon Growth Model calculator computes the present value of a stock based on the dividend per share in year one (D₁), the required growth rate (k), and the growth rates in dividends (g).

INSTRUCTIONS: Choose the preferred units and enter the following:

• (D₁) Dividend per share in year one.
• (k) Investors required annual rate of return.
• (g) Perpetual annual growth rate in dividends.

Gordon Growth Model (VoS): The calculator returns the present value of the stock in U.S. dollars.  However, this can be automatically converted to other currencies via the pull-down menu.

The Math / Science

The Gordon growth model is used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends.

The formula for the Gordon Growth Model is:

   VoS =  D₁/(k - g)

where:

• VoS = Value of Stock based Gordon Growth Model
• D₁ = Dividend per share in year one
• k = Investor required annual rate of return
• g = Perpetual annual growth rate in dividends

Source: Gordon Growth Model Definition | Investopedia http://www.investopedia.com/terms/g/gordongrowthmodel.asp#ixzz4AWojyp37 

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