In the dividend discount model, V = d/(r-g) what assumptions must be made if the

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In the dividend discount model, V = d/(r-g) what assumptions must be made if the model is to be valid?

Explanation / Answer

d ie Dividend => Dividend is expected to be received inone year r is cost of equity or required rate of return and it is constant . It can be estimated using the following formula: Risk-free rate + (Market risk premium) * Beta g ir growth factor and is constant, it can be calculated by ( return on investment * retention ratio) All Equity Firm The firm has infinte life ris always greate rthan growth. Firm uses only retained earnings to fiannce its business.

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In the dividend discount model, V = d/(r-g) what assumptions must be made if the

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