Comments

  1. avatar 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?

    • Avatar of johnmoffat 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).

  2. Avatar of 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.

  3. avatar says

    I enjoyed the session. I am a person who cannot cram things I don’t understand, however if I do understand something I will very rarely every forget it. So to Mr. Moffat, thanks for helping me to understand the formula so that I won’t have to cram it off…

      • avatar says

        Thanks for your reply Mr. Moffat, however I am not getting the same result. I am calculating it as follows: 33000/28000= x2 (the first result I take the square root- 1.3890) = x2 (the second result I take the second square root-1.9294), eventually I am getting 1.9294 as a final result. Thank you very much

      • Avatar of johnmoffat says

        What you are doing is squaring it!

        (1.3890 x 1.3890 = 1.9294)

        I do not have your calculator, but there must be a square root button on it.
        33000/28000 = 1.1786. Square root once gives 1.0856, and square root again gives 1.0419

  4. Avatar of tejot says

    Sir,
    Please help me understand why the following will be wrong for estimation of the Growth rate in example 4
    33000-28000/28000*100=17.86% (total growth)
    Average Growth=17.86/4%=4.46%

    Thank you

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