Gordon Growth Model Flashcards
1
Q
What is the gordon growth model formula?
A
g = r x b
2
Q
What is r? How is it calculated?
A
r is the return on equity
r=Earnings/Opening Book Value of Equity
3
Q
What is b? How is it calculated?
A
b is the % of profits retained
b=1-Dividend Payout %
4
Q
What are the problems with the Dividend Valuation Model?
A
1) Assumes shares only have value because of dividends
2) Dividends grow at a constant rate - This is unrealistic
3) Uses historic data to estimate future dividends - Unlikely to be accurate
