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what is the difference between these two formula's of Gordon ? which situation should these formula be applied ?

Answers (10)

Sriram Somayajula Admin

Both are same Numerator D 0 x ( 1+ g) = Next year dividend ; E x ( 1-b) = Earnings x payout ratio next year Denominator g = br i.e growth rate = return rate on capital x retention rate

but when apply the same for rtp nov20 question , I am not getting the same answer

Swathi Krishna

Ohoo I swa this now Here's what I have done

This walter forumula - there is no growth rate in it. please refer page 9.18 of ICAI Study material Dividend decisions chapter

Swathi Krishna

Sir, I was talking about Gordon's formula

My suggestion always apply d0 x ( 1+g) and state an assumption that the given dividend is dividend for year ( unless they specifically state in the question that the given dividend is for next year) and you are computing price based on next year's dividend. What you have done is correct