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hi
question 4 of 5 of chapter 15 practice questions:
a company has just paid an ordinary share dividend of 32.0 cents and is expected to pay a dividend of 33.6 cents in one years time. the company has a cost of capital of 13%
what is the market price of the companys shares to the nearest cent on an ex dividend basis?
the answer is $4.20
Please can you explain how this answer is calculated?
much appreciated!
thank you
g = 33.6/32.0 – 1 = 0.05 (5%)
Using the dividend valuation formula,
Po = (32 x (1.05)) / (0.13 – 0.05) = 420c or $4.20(Incidentally, I am working on making the software provide the workings for the correct answers automatically after you have submitted your attempt. It is already there for the first 10 tests and will be working for the remainder within a few days 🙂 )
thank you John! this really has helped me 🙂
yes I noticed some questions did not show how the answer is derived. this will be useful once workings are given.
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