Problem
Common stock for Red River Enterprises paid a dividend of $1 per share this year, and dividends are expected to grow at the rate of 8% per year for the foreseeable future. If an investor assumes that the risk level of Red River warrants a 12% rate of return, what would be the intrinsic value per share, using the normal growth model developed by Gordon? Recompute the value of Red River common stock assuming the following expected growth rates: 10%, 11%, 11.5%.