• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Regarding growth model

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Regarding growth model

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • February 16, 2022 at 5:16 am #648686
    julianleong
    Participant
    • Topics: 12
    • Replies: 18
    • ☆

    Hi John,

    In the growth model, to get the Ke with dividend growth, the formula is D0(1+g)/Po + g.

    T1 dividend (1+g) is a point in time as with T0 (1). It is just two static numbers for terminal value calculation. At the same price, T1/Po will be higher than T0/Po.

    However, the dividend is growing and we need to account for it. Therefore, I understand why the growth needs to be added to the Ke (if price remains the same). e.g. T1/P0 + g

    How can we proof this mathematically that the growth (say 6%) translate exactly to the Ke (e.g. T1/P0 + 6%)

    February 16, 2022 at 9:58 am #648705
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You use an iterative proof.

    If the rate of growth is g and the discount rate is Ke, then

    Po = D(1+g)/(1+Ke) + D ((1+g)/(1+Ke))^2 and so on to infinity.

    You multiply throughout by (1+g)/(1+Ke), and then solve the two equations together.

    If you have studied this arithmetic before then it is a very easy proof. Otherwise do not waste your time because you cannot be asked to prove it which is why you are given the formula in the exam.

    February 16, 2022 at 5:38 pm #648730
    julianleong
    Participant
    • Topics: 12
    • Replies: 18
    • ☆

    Thanks John. This is just for my own understanding. Really appreciate your help!

    February 17, 2022 at 5:52 am #648745
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You are welcome.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Regarding growth model’ is closed to new replies.

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • dkessilfie on FM Chapter 1 Questions – Financial management objectives
  • ahmadhoney on ACCA Advanced Audit and Assurance (AAA) The Audit Report 3: Types of Audit Report
  • Bimasha@123 on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)
  • Ken Garrett on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)
  • Bimasha@123 on Discounted Cash Flow Techniques – ACCA Advanced Performance Management (APM)

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in