June 2014 question 4 b

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December 1, 2015 at 3:56 am #286598
farhana001
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Sir can you explain me (b)
4th para eg: slightly less than 3.1%.
December 1, 2015 at 4:45 am #286604
farhana001
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(C) why did the examiner deduct 0.2 while calculating the TERP
December 1, 2015 at 7:13 am #286628
John Moffat
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The share price has been calculated at $59.04M using a growth rate of 3.1%.
However the actual share price is a bit lower at $56.4M and this could be because shareholders are expecting growth to be a bit lower than 3.1% a year. (If you use a lower growth rate then we end up with a lower market value)
December 1, 2015 at 7:15 am #286629
John Moffat
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0.2M is subtracted because these are the issue costs. Not all of the $9.4M raised is left in the business (and therefore belongs to the shareholders) – $0.2M had to be paid out in issue costs which therefore reduces the total value of the business by $0.2M
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