Question 2: Gordon model. a) Prove Gordon's formula. b) Is it possible to obtain a P0/E0 formula based on Gordon's formula? c) How do we estimate g, the sustainable growth rate, using the DuPont decomposition. Define and explain each of the elements of this formula.

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a To derive Gordons formula we start with the basic formula for the price of a stock using the dividend discount model which is based on the assumptio... View the full answer