It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Johnson is currently distributing 45% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 20%. Johnson’s estimated growth rate is %.
It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Johnson is currently distributing 45% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 20%. Johnson’s estimated growth rate is %.
Principles Of Marketing
17th Edition
ISBN:9780134492513
Author:Kotler, Philip, Armstrong, Gary (gary M.)
Publisher:Kotler, Philip, Armstrong, Gary (gary M.)
Chapter1: Marketing: Creating Customer Value And Engagement
Section: Chapter Questions
Problem 1.1DQ
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It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate:
| • | Carry forward a historical realized growth rate, and apply it to the future. |
| • | Locate and apply an expected future growth rate prepared and published by security analysts. |
| • | Use the retention growth model. |
Suppose Johnson is currently distributing 45% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 20%. Johnson’s estimated growth rate is %.
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