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Hello Sir, could you please help me understand what is meant by ‘marginal trading basis” in the following explanation to an answer?
The dividend growth model value is lower than the current market
capitalisation at $14.75m. This represents a minimum value that Danoca
shareholders will accept if Phobis Co makes an offer to buy their shares. In
reality they would want more than this as an inducement to sell. The current
market capitalisation of Danoca Co of $16.5m may reflect the belief of the
stock market that a takeover bid for the company is imminent and, depending
on its efficiency, may indicate a fair price for Danoca’s shares, at least on a
marginal trading basis.It is a rather silly statement for the examiner to have written, because it doesn’t really mean anything (and is not a standard term).
All he is really trying to say is that although it is the price at which shares are currently trading, it might not be a stable price – i.e. it might change and not therefore represent a fair price.
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