Sfm dividend duubt

Final 1063 views 4 replies

Hi, 

 

I have a doubt in SFM.

 

We have this formula for calculating the price of a share in case of growth.

Po= D1 / K - g

 

(i.e. Dividend / Cost of equity - growth rate)

 

I observed in some questions Institute multiplies D with the (1+g) being the growth in dividend. And some times we dont even though growth rate is given in the question.

 

I am not sure when to Multiply D with (1+g) and when not to multiply.

 

Please someone clear my doubt.

Replies (4)

D is multiplied with (1+g) if last years dividend is given because dividend should be future and not past

Originally posted by : CA Ashwani Narnoli

D is multiplied with (1+g) if last years dividend is given because dividend should be future and not past

Agree.

D1=D(1+g)

That's why if D1 is given in the sum than no need to multiply it by (1+g)

Since D1 stands for dividend in year 1..................... it means in the next year of calculation.

if question says next year dividend/expected divident .......... in that case it will not be multiplied with (1 + growth rate)

it depends upon information of question... if we assume the given dividend as dividend of last year then we have to multiply D(1+G) to find out dividend at the end of current year & if we assume or as per instruction of question given dividend is of current year ..then no need to multiply.. directly apply the formula to obtain present value to all future dividend


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