Illustrates the Gordon and Shapiro formula

Question

What is the importance and the utility of the given formula:

Ke = DIV(1+g)/P + g?

Answer 1

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.