Anchorage 12/09

This topic has 7 replies, 2 voices, and was last updated 6 years ago by John Moffat.

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June 5, 2016 at 11:34 pm #319700
thegoal24
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Hello Sir,
For part b) when calculating the return on the market, I do not understand why P0 is 1. Is it not the market price of an Anchorage share which would be $2.60 ($3.20 less 60 cents)?

Confused.
June 6, 2016 at 9:29 am #319777
John Moffat
Keymaster
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I am looking at Anchorage in the BPP revision kit, and there is no mention of P0 in part (b) and so I am puzzled by your question.
June 6, 2016 at 4:56 pm #319913
thegoal24
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Sorry Sir, I meant the market price of a security in the dividend growth model which was used to calculate the market return to eventually get the cost of equity using CAPM
June 6, 2016 at 4:59 pm #319916
thegoal24
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Also in part e) i), i am lost as to how the cost of the existing bond is approximately 9%.
June 6, 2016 at 5:10 pm #319924
John Moffat
Keymaster
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The current dividend yield is 3.1% and therefore the current dividend = 0.031 x current MV.

Use any market value you want (and then use the dividend as 0.031 x that MV) and you will end up with exactly the same answer 🙂
June 6, 2016 at 5:13 pm #319927
John Moffat
Keymaster
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With regard to the bond interest, it is written in the question that “the cost of Anchorage’s existing 5 years bonds is approximately 9%”
June 6, 2016 at 7:26 pm #320034
thegoal24
- Topics: 6
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Oh I see. Very helpful. Thank you Sir.
June 7, 2016 at 8:13 am #320172
John Moffat
Keymaster
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You are welcome 🙂
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