| Course | GB550 Financial Management |
|---|---|
| Unit | Unit 4 |
| Paper type | Stock valuation models |
| Length | About 860 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB550 Unit 4
Three Models Below the Market Price: A Unit 4 Stock Valuation of an Inland Barge Operator
[Student Name]
Purdue University Global
GB550: Financial Management
Unit 4 Stock Valuation Models
[Instructor Name]
[Date]
The barge operator, its dividend and every price and estimate are composite and illustrative; the models and sources cited are real, and nothing here is investment advice.
Part 1: Estimating Growth
A firm that funds growth only from its own profits can grow at roughly the rate it earns on equity multiplied by the fraction of profits it keeps. From the Unit 1 sheet, return on equity is 8.54 percent and the payout ratio is 59 percent, so retention is 0.41.
Sustainable growth: 0.0854 × 0.41 = 3.50 percent.
This estimate assumes the company keeps earning 8.54 percent on reinvested equity and keeps its payout steady. It is a reasonable long-run anchor for a mature, asset-heavy business, though it would rise if the fleet program lifted return on equity toward the cost of equity, and fall if the board raised the payout.
Part 2: Constant Growth Model
Required return. The course supplies 9.8 percent for this unit; Unit 5 tests it against the capital asset pricing model.
Next year's dividend. D1 = 0.96 × 1.035 = $0.9936.
Formula. V = D1 / (r − g), the constant growth model associated with Gordon (1959), valid only when r exceeds g.
Value. 0.9936 / (0.098 − 0.035) = $15.77.
Part 2b: How Sensitive the Value Is
Because the model divides by the difference between return and growth, small changes in either move the value a great deal. Holding the dividend at $0.96 and recomputing next year's dividend for each growth rate gives the following values.
At a 9.0 percent required return: $16.48 with 3.0 percent growth, $18.07 with 3.5 percent and $19.97 with 4.0 percent.
At 9.8 percent: $14.54, $15.77 and $17.21.
At 10.3 percent: $13.55, $14.61 and $15.85.
Across this whole grid the value never reaches the market price; the highest figure, $19.97, still falls almost $3 short. A half-point change in growth moves the value by roughly $1.25 to $1.90, and a change in the required return of the same size moves it by a similar amount. The model is therefore useful for showing direction and for asking what the price implies, but no single value it produces should be read as precise.
Part 3: Two-Stage Model
New barges entering service over the next four years could lift earnings faster than the long-run rate. The model lets dividends grow 7 percent a year for four years and then 3 percent indefinitely.
Dividends. Year one $1.0272, year two $1.0991, year three $1.1760, year four $1.2584.
Year-four price. P4 = 1.2584 × 1.03 / (0.098 − 0.03) = $19.06.
Value today. Discounting the four dividends and the year-four price at 9.8 percent gives $16.72.
The faster early growth adds about $0.95 to the constant growth value, but the lower terminal growth of 3 percent holds the result well below the market.
Even a burst of growth from the new fleet leaves the model value about six dollars short of the price, so the gap cannot be closed by optimism about the next four years alone.
Part 4: Justified Price-to-Earnings Check
Earnings per share: $46.1 million / 28.4 million shares = $1.623.
Justified P/E. The constant growth value divided by current earnings: 15.77 / 1.623 = 9.71 times.
Market P/E. 22.80 / 1.623 = 14.04 times.
The market values each dollar of earnings at about 45 percent more than the model does.
What the Price Implies
A model value below the market price does not by itself mean the stock is overpriced. It means the market's assumptions differ from the paper's. Solving the constant growth model for each unknown shows which.
Implied growth at a 9.8 percent return. 22.80 = 0.96 × (1 + g) / (0.098 − g) gives g = 5.36 percent, well above the 3.50 percent sustainable rate.
Implied return at 3.50 percent growth. r = 0.9936 / 22.80 + 0.035 = 7.86 percent, below the supplied 9.8 percent.
Either investors expect faster growth than the company's current return on equity supports, or they accept a lower return than the course's figure. Damodaran (2012) notes that dividend models are most reliable for mature companies with stable payouts, which fits this operator, but also that they understate value when a company retains cash for growth the payout ratio does not capture. Brealey et al. (2023) observe that implied returns from dividend models are often lower than estimates from the capital asset pricing model, which Unit 6 will confront when the two equity costs disagree.
Limits
The supplied 9.8 percent is the input most likely to change. If Unit 5's capital asset pricing estimate is higher, every model value falls further; if lower, the gap narrows. The two-stage growth rates are assumptions tied to the fleet program, and they should be revisited after the capital budgeting analysis in Units 7 and 8. This is a valuation exercise, and nothing in it is a recommendation to buy or sell the shares.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. Review of Economics and Statistics, 41(2), 99-105. https://doi.org/10.2307/1927792
Reading the GB 550 Unit 4 instructions
GB550 Unit 4 asks you to value a company's shares with several models. Estimate sustainable growth from return on equity and retention. Apply the constant growth model, stating the required return and its source. Build a two-stage model if the company's growth is likely to change, showing each dividend and the terminal value. Check the result with a justified price-to-earnings ratio. Show how sensitive the value is to the return and growth inputs. Compare the values with the market price and solve for the growth or return the price implies. State the limits and say clearly that the exercise is not investment advice. Plan on four parts over about five pages, with valuation sources in APA 7.
How this GB550 Unit 4 example is built
Part one multiplies 8.54 percent return on equity by 0.41 retention for 3.50 percent growth. Part two applies the Gordon model to a $0.9936 dividend, and a sensitivity grid shows values from $13.55 to $19.97 never reaching the price. Part three grows dividends 7 percent for four years before 3 percent, and the highlighted sentence notes the burst still leaves about six dollars of gap. Part four sets the justified 9.71 against the market's 14.04. Implied growth of 5.36 percent and an implied return of 7.86 percent follow, read with Damodaran on mature payers and Brealey and colleagues on implied returns. Limits flag the supplied 9.8 percent for testing in Unit 5.
Reading the GB550 Unit 4 grading rubric
A strong GB550 stock valuation is graded on whether the gap between model and market is explained rather than declared a mispricing. Estimating growth from the company's own figures earns points. Applying each model with visible inputs shows technical command. A sensitivity grid shows how fragile constant growth values are. A two-stage model with each dividend listed shows care. A P/E check expresses the result in familiar terms. Solving for implied growth and return shows analytical maturity. Linking the supplied return to the next unit shows integration. A clear statement that nothing is advice shows professionalism. The references are Gordon's 1959 article, Damodaran's valuation text and the Brealey corporate finance text.
GB550 Unit 4 help: mistakes that cost points
Many GB550 Unit 4 papers compute a model value below the market price and conclude the stock is overvalued, without asking what the market might be assuming. Others plug in a growth rate with no basis. A frequent gap is sensitivity: because the model divides by the return minus growth, a half-point change in either moves the value sharply, and the paper should show that. Some writers forget to check that the required return exceeds growth. Estimate growth from the company's figures, apply each model with inputs shown, test sensitivity, build a two-stage version if warranted, compare with the price, solve for what the price implies and note that the exercise is not advice.
Get a GB550 Unit 4 example written to your instructions
Tell us the company, its dividend history and any required return your instructor supplied, then attach the Unit 4 instructions and rubric. The valuation comes back with growth tied to the firm's own figures, each model worked in full and the market price reconciled. There is no fee for a first custom sample, which usually lands inside 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB550 Unit 4 questions, answered
What if my company pays no dividend?
Then dividend models do not apply directly, and most instructors accept a free cash flow or earnings-based model instead, or a two-stage model that assumes dividends begin later. The sample's firm pays one, which is why it uses the dividend family. The custom version follows whatever approach your prompt names for a company that retains all of its earnings.
Why is the required return supplied rather than calculated?
Because the capital asset pricing model often arrives in the next unit, after the valuation models. The sample uses a supplied 9.8 percent and says it will be tested later. When the risk unit produces a different figure, the valuation can be rerun, and that link between units is frequently what a company analysis carried across the term is graded on.
Does a value below the market price mean the stock is overpriced?
Not on its own. A model value reflects the assumptions fed into it, and the gap may mean the market expects faster growth or accepts a lower return than the paper assumed. The sample reports what the price implies for each and stops there. It is a valuation exercise, and nothing in it is a recommendation to buy or sell any security.
Where can I find a free GB550 Unit 4 sample paper?
This page carries a full GB550 Unit 4 stock valuation of a composite barge operator with constant growth, two-stage and P/E models, implied growth and return, and APA 7 references.
What does the $22.80 price imply?
At the supplied 9.8 percent return, growth of about 5.36 percent, well above the 3.50 percent sustainable rate; or, at 3.50 percent growth, a required return of about 7.86 percent.