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ACCA F9 The cost of capital – The cost of equity

ACCA F9 lectures ACCA F9 notes

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  3. Sir i have a doubt in example 3.You said something related to ex div market value which i did not understand properly. Is it something like this?
    If they say that, the Cum div market value is 360c and dividend of 30c was about to be paid then Po(ex div) would be 360-30= 330 cents. Right?
    And cost of equity would be 30(1+0.08)/330 +0.08
    Am i right?

    • The ACCA does not have views on things like this!! 🙂

      In theory both approaches would obviously give the same result. In practice they don’t and CAPM is regarded as better.

      In the exam, the method you use is dependent on the information given in the question – both approaches are examined.

  5. Dear John,

    Should we be asked to comment on the accuracy of the estimated future Market Value per share as in Example 6 (c). Can we say that this subject to the accuracy of the dividend growth as well as the assumption that the shareholder required rate of return remain constant?

    Thank you!

    • It is nothing to do with the required rate of return being constant. The market value today depends on the rate of return they require as of today. In the future, required returns may change and therefore the market value will change.

      It does however depend on the estimate of the expected dividend growth rate being correct. It is the expected rate of growth that determines the market value.

  6. Sir why question 1(chapter 17) is using different symbols for shareholders required rate of return ? In earlier chapter we used symbol ‘re’ and in this chapter its ke? I know its silly question but still thought of clarifying my doubt.

  7. hello sir
    hey
    you took the 4th under root to calculate average growth but sir calculator states the answer 1.15598 if we deduct 1 than we get the 15 % in example 4? is that i am getting it wrong or you made an error .?

  10. Dear John,

    Just one question. The statement “Shareholders usually have the power to increase dividends at annual general meetings of a company” is false. Why ? Is it because their ownership is dispersed by holding just a small proportion of shares, so they hardly can coordinate, or something else?

    Thank you very much

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