[michvp]

Dear Mr Moffat,

Related to the dividend yield, I agree with you that usually the dividend yield is calculated on the current share price. Why was in June 2010 Qs 4 calculated on the share price at the end of the previous year?

Thanks

[michvp]

Hi,

In this question, the examiner finds the share price in year 2.

Since the growth is starting from year 4 onwards, can we work out year 3 PV as 25c/1.09^3 and then we use the DGM from year 4 onwards, hence finding the value of the shares in year 3? 25c x 1.04/ (0.09 – 0.04). Then we divide the answe by 1.09^3 as that would the value of the shares in year 3.

The answer will be the same. Hence, like this, there will be consistency with the question of June 2012 Qs 4 which is very similar.

Thanks

[michvp]

May I please ask about Qs 31 of September/December 2017? I have a query re the calculation of the cost of equity as I cannot get 11.7%

Thanks

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