What is an advantage of using the Gordon growth model to estimate the cost of...

A major advantage of the Gordon growth model is that it explicitly incorporates expectations about future dividend growth. By linking the stock’s value to anticipated dividends and their growth rate, the model aligns valuation with investors’ forward-looking expectations rather than solely historical data. This forward-looking nature is consistent with modern financial management principles, which emphasize expected future cash flows as the primary driver of value. Unlike CAPM, which focuses on risk via beta, the Gordon growth model directly reflects dividend policy and growth prospects. For mature firms with stable growth, this provides a practical and intuitive estimate of the cost of equity. Option C correctly identifies this strength of the model.