- This topic has 5 replies, 3 voices, and was last updated 3 years ago by
.
- Posts
Is it correct to say that ex-div is the price at the start of the year while the cum-div is the price at the end of the year & it does include dividend paid in the year in cum-div price?
And ex-div price is relevant in the calculation of dividend growth model and therefore we need to deduct the dividend paid from the cum-div price to get the ex-div price?
I confused about this line please do clear that to me “ex-div is the price immediately after a dividend has been paid” whereas “cum-div is the price immediately before a dividend is paid”.
What does it mean by “price immediately after a dividend has been paid” and “price immediately before a dividend is paid”?
Your first statement is not correct.
If you sell a share that is cum-div then the dividend that is about to be paid will be received by the person who buys the share.
However, once the share goes ex-div it means that if you sell the share it is too late for the company to change their records and you will still get the dividend – the person buying the share will not receive the dividend.
Therefore, the MV of the share will fall when the share goes ex-div and it will fall by the amount of the dividend.
So all you need to remember is that the ex div MV of a share is the cum div MV less the dividend about to be paid.
I do explain this in my free lectures.
Before the ex-div date, the share price is actually cum-div share price that has a dividend included in it which is about to be paid at the end of the year? true?
I am confused in Chap 15 of your notes example 3, you’ve calculated current market value of the shares as cum-div, but not ex-div? Why is that? Is it because it says the BETA PLC is about to pay a dividend which means the share price has not passed ex-div date so it has dividend included in it, so it is cum-div. Correct?
I appreciate your help 🙂
Yes, that is correct. If a question says that a dividend is about to be paid then we always assume that means it is cum div. (If nothing is mentioned then we always assume MV’s are ex div)
(I do hope that you are not using the notes without watching the lectures that go with them, because that would be a waste of time. They are only lecture notes, and it is in the lectures that I work through the examples and explain and expand on the notes.)
Hello Sir, I have a question regarding the benefit of Tax on the cost of debt. When can a company not get the benefit of the tax on the Interest given to Debt Holders?
In future, you must start a new thread when you are asking about a new topic – your question has nothing to do with ex-div or cum-div values.
The only time that a company will not get the tax saving on the interest paid is when they are do not make enough profit to cover the interest. (As you should be aware, the profit on which tax is calculated is after charging any debt interest.)
For paper FM this can only be relevant in the discussion part of a question. For calculations in Paper FM we assume that they will always get the tax saving on interest paid.
- You must be logged in to reply to this topic.