Constant Dividend Growth Model | Solved Example | Finance | Solutioninn.com
This video tells about how the constant dividend growth model works with an example. Find more examples at
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The video also illustrates how to find the missing figures from the formula of the dividend growth model. You can find growth rate, stock price, and cost of equity or required rate of return using the same formula.
This model assumes that the required rate of return will remain the same for the foreseeable future and also assumes that the growth rate is going to be constant.
The same results will be obtained using the sustainable growth rate formula that states
g = b x ROI
Where
b = rate of retention i.e. (1- dividend payout ratio)
ROI = return on investment
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