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This is a question posed to us by my professor in my finance class. I was under the impression that the Gordon Growth Model was used to find the intrinsic value of a stock, but I am unsure how to plug in these values and use it to find the value of this corporation.

The way I learned it was P=D/k-g, where P is the value of the stock, D is the expected dividend per share 1 year from now, k is the required rate of return on equity, and G is the dividend growth rate. What I don't understand is where I would use the values given in the problem in this model, since it's the value of the corporation and not a dividend. Any help would be much appreciated.

Question

Suppose Microsoft Corporation’s projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues from personal computers and slower growth of surface sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The company’s weighted average cost of capital is 11.5%. Use the Gordon Growth Model to estimate the value of the corporation

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Under GGM dividends are used, under the assumption of constant growth. You're given FCF under the assumption of constant growth. So you could use FCFF or FCFE models. Since the question is asking for the value of the corporation, you will want to use the FCFF model

$Firm Value = \frac{FCFF_1}{(WACC-g)}=\frac{FCFF_0(1+g)}{(WACC-g)}$

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