Hi,
P0 = D1/ke-g
i want to know why we deducting growth rate from cost of capital?
thanking you
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Dividend policy
Replies (2)
When we expect growth in dividend perpetually then to consider present value of growth effect in price we reduce our cost of capital by growth rate.
Because, we are calculating Current price, P0 from next year dividends, D1. When we deduct growth, dividend becomes D0.
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