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**CFA Practice Question**

Since D/P = (r - g) / (1 + g), and P/CF = (1 + g) /(r - g), therefore D/P = CF/P. True or False?

Correct Answer: False

The g in the P/CF formula is the expected growth rates of future cash flows, not the dividend growth rate.

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**User Contributed Comments**
8

User |
Comment |
---|---|

HenryQ |
Good question! |

ikaneng |
which also means that if the 2 g's are equal, then D/P = CF/P? |

gnacinka |
dividend is a kind of CF, but different that they mean |

NIKKIZ |
Mathematically, 1+g/r-g is not equal to r-g/1+g... |

NIKKIZ |
Or am I incorrect? |

sogah |
very good question lol |

endurance |
KA-boom ... very useful for understanding the concepts |

JMBrown |
NIKKIZ,1+g/r-g is P/CF and they are comparing D/P and CF/P using the reciprocal. So it would actually be D/P=r-g/1+g and CF/P=r-g/1+g only with varying definitions for g. |