Constant growth model Input area: Last Year\'s Dividend (Do) $9.00 Constant Divi

Question

Constant growth model Input area: Last Year's Dividend (Do) $9.00 Constant Dividend growth rate 3% Required Rate of Return 11% Output area: Next Year's Dividend (D1) = Estimated Current Price (Po) = What are the two criteria needed to use the Constant Growth Model? 1 2 Constant growth model Input area: Last Year's Dividend (Do) $9.00 Constant Dividend growth rate 3% Required Rate of Return 11% Output area: Next Year's Dividend (D1) = Estimated Current Price (Po) = What are the two criteria needed to use the Constant Growth Model? 1 2

Explanation / Answer

Stock price = D1÷(r-g)

D1 is next expected dividend

r is required return

g is growth rate

= $9×(1+3%)÷(11%-3%)

= $9.27÷8%

= $115.88

Two conditions are,

Required rate must be known and

Expected dividend growth must be required.

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