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.
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