Example: Applying the Gordon Growth Model

An analyst obtained the following information regarding Global Shipping Inc.:

Current share price $=$ $$28$

Recent dividend per share $=$ $$1\mathrm{.}95$

Earnings per share $=$ $$4\mathrm{.}25$

Return on equity $($ROE$)=15\%$

Required rate of return or cost of equity $=20\%$

Use the Gordon growth model to estimate Global Shipping's intrinsic value. The question requires $4$ answers. Use two decimal places!

First, calculate the retention rate$[$retentionrate$].$ Input the answer as a percentage with two decimal places.

Second, calculate the constant growth rate, g$.[$growthrate$].$

Third, what is the intrinsic value for the company? $[$intrinsicvalue$].$

How much does the dividend growth assumption add to the intrinsic value estimate$[$growthassumption$]?$ Here, assume growth is $0,$ and use

the equation Value$=$Do$/$k$-$g$.$

Show your work on these $4$ questions.