Choose two stocks to value using the Gordon growth model (or a two stage growth model). One company should be a good fit for the model and the other should be a bad fit for the model. Try your best to estimate the components of the model as well as you can, nothing is perfect. Do not worry too much if your results do not make much sense; just try your best to understand why. The questions below are designed to help you think about these issues.
a. Explain why you chose each firm.
b. Explain why you chose the specific growth model you did. (ie: why you chose 2 growth rates as opposed to 1)
c. Discuss your results in terms of how well the model worked with regards to matching the market price.
d. Are these results surprising?
e. What do you think is the driver of the difference between the estimated price and the market price?