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When do I use the Div Model and when do I use the Div Growth model to attain the Cost of Equity? My question bank is using them interchangeably and I am a bit confused. Sometimes they just use D0/P0 even though they talk about growth and other times they account for the growth and use D1/P0 +G which i understand is the same as D0*(1+G)/P0
Hi,
If there is no growth in the dividend then we simply use D/P to calculate the cost of equity. If there is growth then we use the growth adjusted formula. You would need to highlight the question where it is answering it without any growth but is talking about growth in the question.
Thanks
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