ayaz_mahmud369

This is an example,


If we know the forecast growth rates for a firm’s dividends and the current dividends and current value, we can determine the:

A) net margin of the firm.

B) sustainable growth rate.

C) required rate of return.


Your answer: B was incorrect. The correct answer was C) required rate of return.

Just as we can determine the current value of the shares from the current dividends, growth forecasts and required return, we can solve for any one of them if we know the other three factors.



For C to be correct, we must assume constant dividend growth and and GGM, if so, we could also calculate the sustainable growth rate from D1/D0 to get (1+g).