To find the value of XYZ's stock using the Dividend Discount Model (DDM), specifically the Gordon Growth Model, we can apply the following formula:

$P_0 = \frac{D_0 \times (1 + g)}{r - g}$

Where:

• $P_0$ is the present value of the stock (what we're solving for).
• $D_0$ is the most recent dividend paid, which is $0.88.
• $g$ is the constant growth rate of dividends, which is 8% or 0.08.
• $r$ is the required return, which is 12% or 0.12.

Step-by-Step Calculation:

1. Calculate the next expected dividend, $D_1$: $D_1 = D_0 \times (1 + g) = 0.88 \times (1 + 0.08) = 0.88 \times 1.08 = 0.9504$

2. Apply the Gordon Growth Model formula to find the stock price, $P_0$: $P_0 = \frac{0.9504}{0.12 - 0.08} = \frac{0.9504}{0.04} = 23.76$

Final Answer:

The value of XYZ's stock is $23.76.

Do you want more details on this calculation or have any questions?

Related Questions:

1. How does the required rate of return affect stock valuation?
2. What happens to the stock value if the dividend growth rate changes?
3. How is the Dividend Discount Model different from other stock valuation methods?
4. What assumptions are made in the Gordon Growth Model?
5. How can analysts estimate the future growth rate of a company's dividends?
6. How does inflation impact the required rate of return?
7. Can the Dividend Discount Model be used for companies that don't pay dividends?
8. What other models can be used to value a stock with irregular dividend growth?

Tip:

When using the Dividend Discount Model, remember that it's most accurate for companies with stable and predictable dividend growth.