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Sir,
The Formula to find the current share price using Dividend Growth Model is
Po = (do(1+g)/Ke)-gIn this question why is Ke being subtracted by g, where as
firstly do(1+g)/ke should be solved and then resulting value should be subtracted form g.Please correct me where I am wrong and please guide me further
Thanks
The formula is given on the formula sheet (and you are not required to prove it!!), but it is not as you have written.
It is: Po = Do(1+g) / (Ke – g) (the formula sheet uses Re instead of Ke, but they are different symbols for the same thing).
So no – you calculate Do(1+g) and then divide what you get by (Ke – g).
All of this is explained in detail, with examples, in my free lectures, and as I have told you before you cannot expect me to type out all of my lectures here 🙂
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam. Watch the lectures, and then practice every question in your Revision Kit.
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