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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Chapter 17, example 6, calculating the rate of growth.
In example 6, Why is it that while using the Market value formula, the growth rate is different to using the ‘rb’ growth method.
i.e. Po= 2.80, Do= 0.20, g is unknown, Re= 0.18
2.80 = 0.20 (1-g)
————— , the value for g is 10.13% whereas rb gives you a vale of 6.75%.
0.18 +g
Could you please let me know where I’m going wrong here?
Thank you very much.
Just because the rate of return on reinvestment is 18%, it does not mean that the shareholders required rate of return is 18%.
I work through this example in my free lectures on this chapter (and there is obviously no point at all in using the lecture notes without watching the lectures).