Dividend growth rate or Earning growth rate

The dividend growth rate. (However, in the long-term the two growth rates would have to be the same.) Better to tell me which question you are referring to (assuming that it is a past exam question). Have you watched my free lectures on the valuation of securities? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.

Its not a past exam question, however this question is in Kaplan Exam kit. Loki plc is a growing company specialising in making accessories for mobile phones and tablets. The company is currently all-equity financed with 2 million ordinary shares in issue. The existing shareholders are mainly family members and friends. The directors of Loki need to raise finance to fund a new factory and are considering a range of options including flotation and venture capital. Future growth is anticipated to be the following: Earnings next year = $0.25m, expected to grow at 7% pa Dividend next year = $0.14m, expected to grow at 4% pa (c) Calculate the issue price of Loki shares to the nearest cent using the dividend valuation model with a cost of equity of 14%. A $0.60 B $0.70 C $1.19 D $1.24 Answer - B Thank you, Sir. Understood very well.

Since they give the dividend growth rate as 4%, you must use 4% in the dividend valuation model.