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Sir
in part (b) i did understand the calculation but i didn’t understand the advice they have given. So can you explain me the advice portion on easy term.
i want to understand it instead of memorizing it
BPP’s answer is very strangely worded (the examiners own answer made far more sense!).
If they float and become a listed company, then the share prices of listed companies (in theory) are determined by the dividend valuation model which gives the $11.08. That assumes no individual shareholder has control – they will simply receive future dividends without being able to influence them.
If on the other hand, they sell the company outright, then the buyer will have control and as a result will be able to influence future policy, might identify synergy with their existing business, might feel they could run the company better, etc etc and therefore is likely to be prepared to pay more that the price simply based on existing dividend policy.
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