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