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Hi my Dear Tutor, I have some questions.
Question Number 1
In the question, it shows earnings gorwth rate instead of dividend growth rate and my question is that can we apply historic dividend growth formula to calculate earnings growth rate in order to find G?
Question number 3
In the question, it says dividends will grow at a rate of 4 % and earnings growth rate which is less than earning growth rate of 5 %
I took dividend’s growth rate but in the long term it should give the same figure but in this case what can impact earnings to be different from the dividend growth rate?
Question Number 2
In order to find G for Conversation rate, I logically used Dividend growth for share prices to find G. Do we use to find G in Share prices, earnings and Dividends?
Thanks in advance
Q1. How can you use historic dividend growth when you do not know past dividends??? What the examiner has done is correct and he has explained why in his answer.
Q3. Both are only forecasts – nobody knows for certain what future growth rates will be.
Q2. It is not clear what you are asking. As I explain in my lectures, the share price will grow at the same rate as the dividends.
I mean historic dividend growth formula (g=the latest dividend/the last divident power 1/n-1)*100%-I do not say historic dividend growth
I knew exactly what you meant, but you cannot do what you want when you do not know what the past dividends were!!!
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