| Course | MT480 Corporate Finance |
|---|---|
| Unit | Unit 4 |
| Paper type | Stock valuation exercise |
| Length | About 920 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT480 Unit 4
What Growth Does $31.40 Assume? An MT480 Unit 4 Stock Valuation Exercise Using Three Dividend Models
[Student Name]
Purdue University Global
MT480: Corporate Finance
Unit 4 Stock Valuation Exercise
[Instructor Name]
[Date]
Brandywine Hollow Mushrooms, its shares, its dividends and every figure are composite; the sources cited are real.
The Setting
Brandywine Hollow Mushrooms, the composite grower followed through the course, has 48.6 million shares trading at $31.40. It paid a dividend of $1.12 a share last year. The problem supplies a required return on its equity of 9.0 percent. Every part of the exercise repeats one sequence: the expected dividends on a timeline, the model, the inputs and the answer, followed by a sentence comparing the result with the market price.
Part One: Constant Growth
If dividends grow at a steady 4.5 percent forever, next year's dividend is $1.12 times 1.045, about $1.1704. The constant growth model, associated with Gordon (1959), takes next year's dividend and divides it by 9 percent less 4.5 percent: $1.1704 divided by 0.045, about $26.01.
That is well under the market's $31.40. Either the market expects faster growth, or it requires a lower return, or the stock is overpriced. The exercise does not jump to the third conclusion; it asks what growth the market price implies.
Part Two: Two-Stage Growth
The grower is finishing a new growing house, and analysts expect dividends to grow faster while it ramps up. A two-stage path assumes 11 percent growth for three years, then 4.5 percent forever. The dividends on the timeline are $1.2432 in year one, $1.3800 in year two and $1.5317 in year three. At the end of year three, the constant growth model values the remaining dividends: $1.5317 times 1.045, divided by 0.045, about $35.57. Bringing the three dividends and the year-three price back to today at 9 percent yields about $30.95.
The two-stage value comes much closer to the market price. A few years of faster growth, if the new house performs, account for most of the gap.
Part Three: The Growth the Price Implies
Solving the constant growth model for the growth rate at the market price asks what single steady rate would make $31.40 a fair price at a 9 percent required return. The answer is about 5.25 percent.
Is 5.25 percent believable? Sustainable growth, the pace a firm can keep up without selling new shares, multiplies its return on equity by the fraction of profit it keeps. The grower earns an 11.6 percent return on equity and pays out 54.63 percent of earnings as dividends, retaining 45.37 percent. Its sustainable growth is 11.6 percent times 0.4537, about 5.26 percent.
The growth the market price assumes is almost exactly the growth the company can fund from its own earnings.
The market is not paying for heroic growth. It is paying for growth the company can finance from retained earnings at its current profitability, which makes $31.40 look reasonable rather than inflated.
Reading the Three Results Together
The three common stock results answer different questions. The constant growth value, $26.01, asks what the shares are worth if the next decades look like the last few years. The two-stage value, $30.95, asks what they are worth if the new growing house delivers a burst of growth first. The implied growth rate, 5.25 percent, asks what the market already believes. An investor deciding whether to buy at $31.40 is really deciding whether the two-stage story is likely, since the price sits close to it and well above the steady-growth value. That turns a valuation exercise into a question about operations: will the new house reach full output on schedule, as Unit 8 later assumes?
Why the Required Return Matters as Much as Growth
The required return in every model is the rate investors demand for bearing the grower's risk. The exercise takes 9.0 percent as given, but Unit 5 estimates it from the stock's beta and finds 8.92 percent, close enough that the conclusions hold. Had the required return been 10 percent, the constant growth value would fall to about $21.28 and the market price would imply growth near 6.2 percent, well above what the company can sustain. The comparison between implied and sustainable growth is only as good as the required return behind it.
Part Four: The Preferred Shares
The grower also has preferred shares with a $25 par value and a 5.75 percent dividend, $1.4375 a year, with no maturity. A perpetuity is valued at its payment divided by the required yield. At a 7.1 percent required yield on similar preferred stock, each share is worth about $20.25, below par because investors now demand more than the dividend the shares were issued with.
Limits of the Models
Dividend models are sensitive to their inputs. In part one, raising growth from 4.5 to 5.0 percent would raise the value from $26.01 to about $29.40; lowering the required return from 9.0 to 8.5 percent would do almost the same. Modest shifts in the inputs swing the answer widely, which is why the exercise uses the models to test what the market believes rather than to declare a precise value. Brealey et al. (2020) caution that the constant growth formula is most reliable for mature firms with stable payout policies, and the two-stage model is a better fit while the new growing house changes the grower's earnings. Ross et al. (2022) add that a firm's required return should come from its risk, which Unit 5 estimates directly.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.
Gordon, M. J. (1959). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 41(2), 99-105. https://doi.org/10.2307/1927792
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw Hill.
The Purdue Global MT480 Unit 4 instructions
For Unit 4, MT480 sets a dividend-model valuation of one company's common and preferred shares, judged against the market price. Lay out the expected dividends on a timeline for each model. Use constant growth for a steady case, a multi-stage model where near-term growth differs, and solve the constant growth model for the growth rate the market price implies. Compare implied growth with sustainable growth, return on equity times the retention ratio, to judge whether the price is reasonable. Value any preferred stock as a perpetuity. Discuss how sensitive each result is to the growth rate and required return. Close with what the results say about the market's expectations rather than declaring a precise intrinsic value. About three or four pages with four parts is typical, all at the required return the problem supplies.
How this MT480 Unit 4 example is built
Brandywine Hollow's exercise sets out the share price, dividend and required return. Part one applies Gordon's constant growth model and finds a value well below the market. Part two builds the two-stage path dividend by dividend and values the year-three price, landing close to the market. Part three solves for implied growth and compares it with sustainable growth, under a highlighted line that the two nearly match. A section reads the three results together and turns the question toward whether the new growing house will ramp on schedule. Another shows how a 10 percent required return would change the conclusion. Part four values the preferred shares as a perpetuity. A last section on the models' limits shows how small shifts in growth or required return swing the value, citing Brealey and colleagues and Ross and colleagues.
Reading the MT480 Unit 4 grading rubric
Stock valuation exercises earn marks for correct models and sensible interpretation. Instructors credit dividend timelines that make each model's inputs visible. Correct use of the constant growth and two-stage models, including valuing the terminal price at the right point, is expected. Backing out the growth a price assumes, then setting it beside what the company can fund itself, usually earns the most analysis credit. Showing how far the value moves when growth or the required return shifts a little demonstrates the models' limits. Valuing preferred stock correctly as a perpetuity is a routine marking point. Treating the models as tools for judging the market's assumptions, rather than as exact prices, shows maturity. Clear labeling of each part helps the grader follow the exercise.
MT480 Unit 4 help from the desk
The most frequent Unit 4 error is using this year's dividend instead of next year's in the constant growth model. Another is discounting the two-stage terminal price from the wrong year. Students often find a value under the quoted price and call the stock expensive without asking what growth investors expect. Sustainable growth is rarely calculated, so the implied rate cannot be judged. Sensitivity is commonly ignored. Before submitting, check that each model uses the dividend one period after the valuation date. Then solve for the growth rate the market price implies and compare it with return on equity times retention. If the two are close, the market price has an explanation; if not, describe the operating results the market seems to be counting on.
Get an MT480 Unit 4 example written to your instructions
Attach the Unit 4 exercise with its dividend figures, growth assumptions and required return, plus your rubric. Each part of a custom sample places the dividends on a timeline, names the model, and closes by comparing the computed value with the market price your problem gives. First custom sample free; expect it within 24-48h in most cases. 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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MT480 Unit 4 questions, answered
Why is the constant growth price so far below the market price?
Because the market expects more than 4.5 percent growth. The exercise shows that the quoted 31.40 is consistent with about 5.25 percent, and that the two-stage path, which adds three years of faster growth from new greenhouse capacity, lands within about 45 cents of the market. The gap is information about expectations rather than proof that the shares are mispriced.
Do I need the preferred stock part if my problem has none?
No. Sections vary in what they include, and a custom sample follows your problem's parts in its own order. Some add a price-earnings cross-check or a nonconstant path with more stages; the method stays the same, with dividends placed on a timeline, the terminal value located carefully and each result read against the market price.
Where can I find a free MT480 Unit 4 sample paper?
The whole MT480 Unit 4 exercise is printed here, valuing a composite mushroom grower's shares with three dividend models and its preferred stock.
What growth does the market price imply in the MT480 Unit 4 sample?
About 5.25 percent, almost exactly the 5.26 percent the company can sustain from an 11.6 percent return on equity and 45.37 percent retention.
How is sustainable growth used in an MT480 stock valuation?
It multiplies return on equity by the share of earnings retained to estimate how fast dividends can grow from internal funding alone, giving a benchmark for the growth a market price implies.