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Bryan Co has 10 million ordinary shares in issue with a market price per share of $1.55 cum-div. An annual dividend of $0.09 per share is just about to be paid. Annual dividends have been growing at a steady rate of 6% each year. The company’s other major source of funds is a bank loan of $7m which has a pre-tax cost of 8%.
If Bryan Co pays corporate tax at a rate of 33%, what is its after-tax weighted average cost of capital?
Calculation Of Cost of equity
=D/P +gCost of equity = 0.09/1.46 +0.06 = 12.16% is that correct..?
And for Market value of equity what should we take..?
Cum share price or ex share price.. here..? (1.55 or 1.46) which one is market value for calculation..?
Where is this question from?
I think you are correct the cost of equity is 0.09/1.46 + 0.06 = 12.16%.As for the market value of equity, you should use the ex-dividend share price, which is $1.46.
The market value of equity represents the total value of the company’s shares in the market, and it is based on the ex-dividend share price because it reflects the value of the shares without considering the upcoming dividend payment.
This question is from study hub
And they Calculated
Cost of equity like = D*(1+g)/P +gke is 12.53% so that I came up with this doubt
And in market value part I had a doubt as in open tuition lectures they mentioned the market value is always ex div unless told different
So can I have some example For taking Cum div share price.. as market value..?
As i saw a question in Chegg.com..???
B Company has 10 million 25 cents ordinary shares in issue with a current price of 155 cents cum dividend. An annual dividend of 9 cents has just been proposed. The company earns an accounting rate of return to equity (ROE) of 10% and pays out 40% of the return as dividends. The company also has 13% redeemable loan notes with a normal value of $7 million, trading at $105. They are due to be redeemed at par in 5 years’ time. If the rate of corporation tax is 33%, what is the company’s WACC?
In this question they have taken market value as 155 cents ..?
Can i know the difference between this one and that question on market value part ..?
Also why did they Take ke formula as that..? Cost of equity like = D*(1+g)/P +g in study hub….??
Explain these 2 part it will be helpful
The market value mentioned in the current question refers to the current price of the ordinary shares, which is 155 cents cum dividend.
This means that the price includes the next dividend.
On the other hand, the previous question mentioned the cum div price as an example to explain the concept, but it did not provide specific values for the market price.
The difference lies in the specific values provided in each question, but the concept of cum div price remains the same.
Moreover both the question looks similar so why did they take the value differently..? What’s the specific value
i still didn’t get it..?And in cost of equity part that doubt ..?
I can’t tell you why they have done the questions differently
I don’t have access to everything
This is the problem with researching lots of different sources
Ok thanks I will take on Ex dividend In these cases …
Sorry to ask this Could you say simple example when to take cum dividend share price as market value..? I am extremely sorry to asking again and again…
But in study hub they had give cost of equity calculation D*(1+g)/P +g
we already got D1 so why did they done D*(1+g) in study hub…?
as per my calculation Cost of equity is 12.16% And you added this one is correct I will go with this one..
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