Some candidates had difficulty calculating the average historical dividend growth rate, although either the arithmetic or geometric average would have been accepted. Most answers were able to offer a dividend growth model value, even when the calculated growth rate was incorrect.

The second dividend growth model valuation required the dividend growth rate to be calculated using Gordon’s growth model, as the product of the retention ratio and the return on equity. It was common to see the retention ratio calculated correctly, only to be multiplied by the cost of equity instead of the return on equity.