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Anchorage 12/09

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Anchorage 12/09

  • This topic has 7 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • June 5, 2016 at 11:34 pm #319700
    thegoal24
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    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
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    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
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    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
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    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
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    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
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    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
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    Oh I see. Very helpful. Thank you Sir.

    June 7, 2016 at 8:13 am #320172
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    You are welcome 🙂

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