Sir,
The Formula to find the current share price using Dividend Growth Model is
Po = (do(1+g)/Ke)-g
In 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
Dartig Company
8y ago#1The 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.