WACC

Question 1

How to calculate Growth rate in Dividend valution method?

Answer 1

dividend per share at Yo*(1+g)=Dividend per share of next year of which we are calculating growth rate

Question 2

Computation of Growth rate under Gordon’s growth model?

Answer 2

g=br
g=annual growth rate
b=profit retention %
r=annual rate of return %

Question 3

Limittion of Dividend valuation model?

Answer 3

1. It i assumed that share will be held till infinity whih may not be possible in all cases
2. It assumes constant dividend growth till infinity
3. it is assume dividend is paid every year which not be possible due to loss or other reason such as recession
4. It is difficult to determine growth rate
5. it assume constant cost of equity (ke)
   which not be possible
6. it assume dividend only determine share price but there are many other factor