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Why the Dividend growth model should be based on P ex-div, pls. clarify
We are using past data to predict the future
gulam: Please do not answer in this forum – it is the Ask the Tutor Forum (but please do answer in the other forum).
dragon76: The dividend valuation model give Po (the NPV of a future dividends) on the basis of the next dividend being in one years time. i.e. this years dividend has just been paid, and therefore Po is an ex div value.
When we effectively use the same formula to calculate the cost of equity when we know the market value (Po) then we must for the same reason use the ex div market value.
If you are still unsure then I do suggest that you watch the free lectures (including the relevant ones from F9, because this bit is revision of F9)