Question: 1 2 3 4 5 A B Basic Functions - the Gordon Model 14-Sep-07 Gordon Model D P = -------(k - g) C D E

1 2 3 4 5 A B Basic Functions - the Gordon Model 14-Sep-07 Gordon Model D P = -------(k - g) C D E Your name D k = ---- + g P F 6 7 where: P = the price of a stock share today. 8 D = the value of the next expected annual dividend. 9 k = the company's cost of capital (in pct). 10 g = the annual dividend growth rate (in pct). 11 12 P= $65.00 13 Input values: D= $2.00 14 g= 10.00% 15 k= 13.08% Abercrombie's cost of capital 16 17 18 Memo solution: scenario: 1 2 3 4 19 g= 8.00% 9.00% 10.00% 11.00% 20 D= $1.00 $1.00 $1.00 $1.00 21 k= 13.08% 13.08% 13.08% 13.08% 22 P= $19.70 $24.53 $32.50 $48.15 23 G

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