about TSR–please explain

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April 28, 2010 at 1:43 pm #43654
suejune7981
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IN Dec 2008 EXAM QUESTION 1: THE ANSWER from examiner AS FOLLOWS:

If the dividend yield remains at 6% per year (100 x 15·0/250), the dividend per share for 2008 will be 15·6p (other estimates of the 2008 dividend per share are possible). Adding this to the capital gain of 20p gives a total shareholder return of 35·6p or 14·24% (100 x 35·6/240). This is greater than the cost of equity of 10% and so shareholder wealth has increased.

i donot understand why the denominator using 2.40. if it is correct the TSR=14.83% not 14.24%
April 28, 2010 at 2:03 pm #59703
John Moffat
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It is a mistake.

The denominator should be 2.50. This then does give 14.24%.

Regards
John
April 28, 2010 at 2:11 pm #59704
suejune7981
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John, thanks for your quick reply. i do not understand why it is 2.5. after the rights issue, the price is 2.40. What is the correct meaning of share price at start? what does “start” exactly mean ?

thanks very much
April 28, 2010 at 4:24 pm #59705
John Moffat
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Currently (before everything happens) the share price is 2.50.

After everything happens they get a dividend of 15.6 and a capital gain of 20, and so they end up with a return based on the current share price of 14.24%.
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