Dividend discount model- urgent help

Anonymous (-) (279 Points)

01 March 2017  
I noticed that in some problems growth(g) is added to current dividend (Do) in calculation of market price(Po). i.e. Po=Do(1+g)/Ke-g. While in others growth(g) is not added to the current dividend (Do). i.e. Po=Do/Ke-g. Can anyone explain, when should we not add growth to current dividend in calculating MPS? Example: shares of voyage Limited are being quoted at a price earning ratio of 8 times the company returns 45% of its earnings which are rs 5 per share. You are required to compute the cost of equity to the company if the market expects a growth rate of 15%p.a. solution: cost of equity capital =( Dividend *100/ price )+ growth =(2.75*100/40) + 15% =21.8 7% Why isn't growth rate of 15% added to dividend of rupees 2.75 to arrive at expected dividend and used in the formula to calculate market price?