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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
