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Hello,
In December 2012 Q4(a)
while calculating growth using gordon growth method, and calculating retention ratio, examiner took all past PATs and dividends, basically he made a average retention ratio of 41%Is is acceptable to use latest retention ratio, i only used last years divide and PAT to ensure current retention rate ?
my retention ratio came to be 40%, very close but still led to 12 million difference when calculating Market capitalisation later on.You would lose one or two marks but not more – it would make more sense to use the average rather than just one year.
Should we always use average retention ratio in gordon growth formula? or just when valuing an entity?
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