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Hi
In Mar-Jun 2019 Hybrid paper for the question 31 which requires the calculation of WACC
the data for preference shares is:Book value : 6m
nominal value of shares : $0.75
Ex-Div Share price : $0.64the examiner calculated the MV as follows:
0.64/0.75 x 6m = 5.12
shouldn’t it be $0.64 x 6m = 3.84
can you explain the logic behind the examiner’s calculation and also which method is correct because i always use the second method.
Thanks
The total book value is the total nominal value.
If the total nominal value is $6M and the nominal value per share is $0.75, then the number of shares in issue must be $6M/$0.75 = 8 million shares.
Therefore the total market value is 8M x $0.64 = $5.12M
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