Assuming that the required rate of return is determined by the CAPM, explain how you would use the dividend growth model to estimate the price for Stock i. Indicate what data you would need, and give an example of a "reasonable" value for each data input. How would this be different if you used free cash flows as the basis for your evaluation?
How would the stock's calculated price be affected if gL, rRF, IP (the premium for inflation), rM, and bi each (a) "improved" or (b) "became worse" by some arbitrary but "reasonable" amount? "Improved" means caused the stock price to increase, and "became worse" means lowered the price. "Reasonable" means that the condition has existed in the recent past for the economy and/ or some particular company. You can look at our model for examples.