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Hi Sir. My question is regarding question 239 in BPP revision kit.
The question mentioned company about to pay dividend, so I have calculated the ex div value then plus with dividend they about to pay => cum div value.
But seems like the correct answer only use the (ex div) x (number of share).
Just to confirm with you, is it we assume that we need to pay out all dividends for Danoca Co share holders before the take-over?
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Phobis Co is considering a bid for Danoca Co. Both companies are stock market listed and are in the same business
sector. Financial information on Danoca Co, which is shortly to pay its annual dividend, is as follows:
Number of ordinary shares 5 million
Earnings per share 40.0c
Dividend payout ratio 60%Using a cost of equity of 13% and a dividend growth rate of 4.5%, calculate the value of Danoca Co using the dividend growth model.
Answer is:
Value of Danoca Co = $2.95 x 5 million shares = $14.75 million
Share prices go ex div as soon as the dividend is announced (which is before the dividend is actually paid). Given that the current market value in the question is already ex div, it can be assumed that Q230 also wants the ex div value.
In addition, as you state, it will be the case that the dividends will be paid out before the takeover.
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