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hello
i am having trouble figuring out when to use D0 or D1 in the DVM formula
Some questions uses D0(1+g) while some exclude the (1+g) part, it makes it more tricky when both values are in the answers.i know if the questions states the company just paid out a dividend, then i have to use D0(1+g), what if it doesnt?
Is there any keyword/scenario i should i look out for in order to determine to use D0 or D1Here are some examples of practice questions i been doing
Q1 (uses D0(1+g) )
https://ibb.co/eHXX5UQ2&3 (uses D1)
https://ibb.co/jJhoep
https://ibb.co/djTpkUHi,
D0 refers to the dividend today, and D1 refers to the dividend in one year’s time. So if you are given the dividend in a year’s time then that will be D1 and you can substitute that directly into the equation, as it is equivalent to D0(1+g) as today’s dividend will have grown by the growth rate.
Hope that clears it up a bit for you.
Thanks
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