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acca2050 says

Whats the way to calulate simple method of growth. Adding all figures and divide by 2?

John Moffat says

You would add all the growth rates and divide by the number of them.

However, in the exam we always calculate the growth properly, as I do in this example.

Muhammad Uzair says

hi sir I was revising this for p4 in june attempt and in example 1 we got a return of 12.5%. I just want to ask that will we be giving this return on the nominal value or on the market value because if we give this on nominal value the dividend would decrease from 30c to 12.5c?

John Moffat says

The market value of a share is determined by the dividend they expect and the rate of return that they require.

So the required return (and therefore the cost of equity) is calculated using the expected dividends and the market value (not the nominal value).

sonria says

Hi Sir,

Thank you for showing us how to calculate to the fourth root, however you didn’t mention how to calculate to the fifth root if five years is given in the exam. Would it then be a matter of calculating to the third root and then to the second root? Or calculating to the second root first and then the third root second? Or is there another way?

Thanks for your help and quick response as exam is only 3 weeks away

Sonria.

John Moffat says

No. The only way to calculate a fifth root is to use a calculator that has this function on it (the ability to take any root, be it the fifth root or sixth root or whatever).

You do need to invest in a scientific calculator to be safe.

sonria says

Thank you for replying. I do have a scientific calculator however it only has square and cube roots… Should I be worried?

John Moffat says

It cannot be a scientific calculator if it does not have the ability to take the nth root (it might be the second function about x^y).

If you want to be safe for the exam, then you do need a scientific calculator.

sonria says

Ok, thank you