So, if earnings at time 1 are E1, the dividend will be E1(1 – b) so the dividend growth formula can become: P0 = D1 /(re –g) = E1 (1 – b)/(re –bR) If b = 0, meaning that no earnings are retained then P0 = E1/re, which is just the present value of a perpetui...
So, if earnings at time 1 are E1, the dividend will be E1(1 – b) so the dividend growth formula can become: P0 = D1 /(re –g) = E1 (1 – b)/(re –bR) If b = 0, meaning that no earnings are retained then P0 = E1/re, which is just the present value of a perpetui...