Module 29.2 LOS 29.h: Pros and Cons of the GGM

Some of the advantages to using the GGM include its applicability to mature, stable firms. The GGM is easy to explain and can be used to value market indices. We can also backout variables like growth rate, required return and value of growth opportunities from the model. Because of this simple nature, it is often used to supplement other more complex methods.

However, the GGM is very sensitive to the estimated assumptions like growth rates which are difficult to measure. It is also limited to dividend paying firms, and firms with volatile growth patterns would also not be appropriate for the model.

Table of Contents´╗┐

Leave a Comment