I have a difficulty with the understanding the logic of the answer to the following question (it appears in the one of the topic tests)
An investor gathered the following data:
Par value of preferred stock offered with a 6% dividend rate $100
Company’s sustainable growth rate 5%
Yield on comparable preferred stock issues 11.5%
Investor’s marginal tax rate 30%
The value of the company’s preferred stock is closest to: $96.92, $54.78 or $52.17
The correct answer is $52.17 = $100×0.060/0.115.
But I do not understand why it would be incorrect to use Gordon growth model?