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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

Is the following equation correct for finding the value of a constant growth stock? Explain.

P ^ 0 = D o r s +g

Summary Introduction

To identify: If the given equation is correct to determine the value of a constant growth stock.

Introduction:

Constant Growth Stock: The stock on which the dividend is assumed to grow on a constant rate in the future is called constant growth stock. This term is used for the valuation of stock based on constant growth model.

Explanation
  • The constant growth model considers the D1 not D0 as this is the value of current dividend or previous year’s dividend

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