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dividend decisions

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

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gordon.png

gor.png


Swathi Krishna

Swathi Krishna

CA Inter

7K+

15-Oct-20 22:42

16

Answers (10)

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


Sriram Somayajula

Sriram Somayajula

Admin

16-Oct-20 10:10

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

Swathi Krishna

CA Inter

7K+

16-Oct-20 21:41

8th question

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Swathi Krishna

Swathi Krishna

CA Inter

7K+

19-Oct-20 16:14

8th question

Can you share what you have done?


Suraj Lakhotia

Suraj Lakhotia

Admin

20-Oct-20 17:16

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

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c4f47131-1310-4cc3-9c97-eee7f258aff0.jpg


Swathi Krishna

Swathi Krishna

CA Inter

7K+

07-Nov-20 12:36

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

Attachments

Walter.JPG


Sriram Somayajula

Sriram Somayajula

Admin

07-Nov-20 12:44

Sir, I was talking about Gordon's formula


Swathi Krishna

Swathi Krishna

CA Inter

7K+

07-Nov-20 14:22

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


Sriram Somayajula

Sriram Somayajula

Admin

07-Nov-20 20:56

K sir Thank you so much for efforts


Swathi Krishna

Swathi Krishna

CA Inter

7K+

08-Nov-20 01:12