Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BPP revision kit Q 225 MCQ
- This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
- AuthorPosts
- June 3, 2018 at 7:31 am #455677
Hi sir,
Can you please explain the solution to this question. I am unable to understand the solution provided in the book?
June 3, 2018 at 10:05 am #455716It would seem that you have not watched my free lectures, because I work through (and explain) a very similar example. It is very popular in the exam.
However, the BPP answer is confusing and has been mistyped as well (even though the final answer is correct!).
The PV of the dividend at time 2 is 0.25 x 0.826 = 0.2065
The PV of the dividend at time 3 is 0.50 x 0.751 = 0.3755You then have a growing dividend and we use the dividend valuation formula.
Had it been starting at time 1, with a current dividend at time 0 of 0.50, then the formula would give:
(0.50 x 1.03)/(0.10 – 0.03) = 7.3571However, the growing dividend starts at time 4, with a dividend at time 3 of 0.50. Everything exactly the same except 3 years later.
Therefore the answer of 7.3571 is a PV 3 years later as well, and needs discounting for 3 year.
7.3571 x 0.751 = 5.5252Therefore the MV = total PV = 0.2065 + 0.3755 + 5.5252 = 6.1072 ($6.11)
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
June 3, 2018 at 10:30 am #455730Got it. Thank you soo much
June 3, 2018 at 3:46 pm #455782You are welcome 🙂
- AuthorPosts
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