Answer: No, because the expected future dividend growth rate is negative

**Explanation:** The Gordon growth model has several key assumptions and requirements for proper application: 1. **Constant dividend growth rate** - The model assumes dividends grow at a constant rate forever 2. **Required return > growth rate** - The required return on equity must exceed the dividend growth rate (r > g) 3. **Sustainable growth rate** - The growth rate should be sustainable in the long run **Analysis of the given data:** - Expected future dividend growth rate: -3% (negative) - Required return on equity: 7.5% - Most recent dividend growth rate: 8% - Nominal GDP growth rate: 3.5% **Key issue:** The Gordon growth model **cannot be used when the expected dividend growth rate is negative**. The model's formula \(P_0 = \frac{D_1}{r - g}\) breaks down when g is negative because: - The denominator (r - g) becomes larger than r - The model assumes perpetual growth, which is not meaningful with negative growth - Negative growth implies the company is shrinking, which contradicts the perpetual growth assumption While the most recent dividend growth rate of 8% exceeds the required return of 7.5%, this alone doesn't invalidate the model. The critical issue is the **negative expected future growth rate**. Therefore, the Gordon growth model is **not appropriate** because the expected future dividend growth rate is negative.

Author: LeetQuiz Editorial Team