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Why required return cannot computed by Gordo Shapiro model

Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by the formula g = ROE (1–p)/(1 – ROE (1–p)), p being the payout.

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Book data (past information) contain no relation to market data (depends on future expectations). The growth within the Gordon-Shapiro formula is the expected one and this does not have much to do with historical data. In Gordon-Shapiro equation, there are two variables that are unknown: Ke and g. We can compute pairs (Ke, g) that satisfy the equation, but we can’t say such that one of them is “the right one”.

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