Hi,
P0 = D1/ke-g
i want to know why we deducting growth rate from cost of capital?
thanking you
2 Replies
CA Chandra Prakash
(9873059766 Increasing knowledge through sharing)
(296 Points)
Replied 31 July 2015
When we expect growth in dividend perpetually then to consider present value of growth effect in price we reduce our cost of capital by growth rate.
Tarun
(AM)
(216 Points)
Replied 31 July 2015
Because, we are calculating Current price, P0 from next year dividends, D1. When we deduct growth, dividend becomes D0.
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