Illustrates the Gordon and Shapiro formula
What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?
What is the importance and the utility of the given formula:
Ke = DIV(1+g)/P + g?
Expert
The given expression Ke = DIV(1+g)/P + g arrives from the Gordon and Shapiro formula to value shares as: P = DIV(1+g)/(Ke–g). In such formulas, P and DIV are identified and Ke and g are not identified. Some people take like g as expected growth of dividends the average of expectations of analysts, and after that they compute Ke (Ke computed in such way is usually termed as implicit).
But Ke computed in this way is just one of several that can be computed. The formula permits us to acquire pairs (Ke, g) which satisfy the equation.
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Solve for the stated annual rate, r equal to the continuously compounded rate of return implicit in turning $1 at the end of 1925 (beginning of 1926) into these reported valued from RWJ9 in 2008 Figure below: 1. Determine the state
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