Capital asset pricing model formula2/11/2024 ![]() Note that the top line (D 0(1 + g)) is the dividend expected in one year’s time.įor a listed company, all the terms on the right of the equation are known, or can be estimated. ![]() G = the expected dividend future growth rate ![]() The first formula predicts the current ex-dividend market price of a share (P 0) where:ĭ 0 = the current dividend (whether just paid or just about to be paid) The formulae sheet for the Financial Management exam will give the following formulae: The dividend growth model can then be used to estimate the cost of equity, and this model can take into account the dividend growth rate. Measure the share price (capital that could be raised) and the dividends (rewards to shareholders). The cost of equity can be estimated in two ways: The cost of equity is the relationship between the amount of equity capital that can be raised and the rewards expected by shareholders in exchange for their capital. This article looks at how a suitable discount rate can be calculated.
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