Gordon Growth Dividend Model Example
XYZ Company board of director has planned to retain 70%
of earning. The cost of equity in the market is 16%. Calculate the Gordon
Growth of Dividend.
Solution
Gordon
Growth of Dividend = Retained Earning x Return, this formula can be expressed
G=Br
Where,
G=
Dividend Growth Rate
B=
Retained earning
r=
Rate of return on equity
By
putting value in above formula, we can solve the above Example
=
70% x 16%
=11.2%
