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June 15 Bento

This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.

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March 6, 2017 at 7:34 pm #376064
genty
Member
- Topics: 27
- Replies: 33
While calculating the retained earnings for all the four years, why haven’t the discounted everything to present value terms?
March 6, 2017 at 7:42 pm #376066
genty
Member
- Topics: 27
- Replies: 33
Also while calculating dividend growth they’ve used Ke to discount it, would it be wrong if I did it on wacc if mv of debt was given?
March 7, 2017 at 7:05 am #376147
John Moffat
Keymaster
- Topics: 57
- Replies: 54699
I cannot understand why on earth you would want to discount anything.
The question requires the gearing to be calculated at the end of each year to see whether or not the covenant has been breached.
March 7, 2017 at 7:06 am #376148
John Moffat
Keymaster
- Topics: 57
- Replies: 54699
You would be very wrong to discount the dividends at the WACC.
The dividend growth model values shares based on the expected future dividends and the shareholders required rate of return (Re) – always!!
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