Gordon model with negative growth rate

[suspense]

Curriculum Book4, Page 275 questions 6, why didn’t they multiply the dividend by the negative growth rate.

[Galli]

Because the problem states the Coal Miner does not expect to grow its dividends in the future (no exploration and mature, finite, projects) so the company’s dividend is shrinking, not growing.

[suspense]

@Galli

Because the problem states the Coal Miner does not expect to grow its dividends in the future (no exploration and mature, finite, projects) so the company’s dividend is shrinking, not growing.

Why didn’t they use the negative growth rate given

[RoundhouseKick]

Because while you can “not pay” dividends, you cannot “take dividends” from investors.

[Galli]

@suspense

@Galli

Because the problem states the Coal Miner does not expect to grow its dividends in the future (no exploration and mature, finite, projects) so the company’s dividend is shrinking, not growing.

Why didn’t they use the negative growth rate given

example:

D0 = 1

G = -8%

or G = 1 + -.08 = .92% growth

D0 = 1

D1 = 1*(.92) = .92

D2 = .92 * (.92 + 0 .08) = .77

etc etc

[suspense]

@Galli

@suspense

@Galli

Because the problem states the Coal Miner does not expect to grow its dividends in the future (no exploration and mature, finite, projects) so the company’s dividend is shrinking, not growing.

Why didn’t they use the negative growth rate given

example:

D0 = 1

G = -8%

or G = 1 + -.08 = .92% growth

D0 = 1

D1 = 1*(.92) = .92

D2 = .92 * (.92 + 0 .08) = .77

etc etc

The curriculum use D0 and D1 which I think is not appropriate

[RoundhouseKick]

Sorry, I just did this question and to answer the OP, they didn’t use the negative growth rate given because the 4 = D1 already, so you don’t need to increase it another year.