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I know that ex-div is dividend in one year’s time while cum-dividend is the current dividend paid.
But is it true that if we put growth in the cum-div to get ex-div which is to be paid in one year’s time?
Secondly, what should I use for DVM formula; cum-div or ex-div because in the numerator of DVM formula calculates as [current dividend + growth] = which is equals to ex-div [right?]
Please correct me if I’m wrong!
You first statement is wrong.
Shares are cum div up until the dividend is announced. They they go ex div simply because when the dividend is paid it will go to the person who owned the shares before the announcement.
Th ex-div value is the cum div value less the dividend about to be paid.
The dividend valuation model always uses the ex div value.
I suggest that you watch my free lectures. They are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Please help me on this one!
DVM Formula:
Po = D1 / r – gIn this formula to get D1 we have to put growth in the current dividend such as (Do + g) = D1.
So my question is that according to this, Do is ex-dividend whereas after taking growth into account it will be D1 which is cum-dividend because it is going to be paid in next year??
Do = ex-div
D1 = cum- divSir please correct me where I’m wrong.
It is not the dividend that is cum or ex div – it is the market value that is either cum div (a dividend is about to be paid) or ex div (the dividend has just been paid).
Do is the dividend ‘now’, whether it has been paid or is about to be paid.
Di is the dividend in 1 years time.The formula gives the ex div MV, and it is always ex-div MV’s that we use in the exam unless the question specifically asks for the cum div value (which is the ex-div value given by the formula + Do).
All of this is explained in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
terry company has an outstanding 660000 of 8% debenture stock on which the interest is payable annually on 13th December. the stock is due for redemption on first January 2016. the market price of the stock at 28th December 2012 was 103 cum interest.
what is the percentage cost of the debenture stock if the tax rate is 30%
You must start a new thread when you are asking about a different topic.
There is no point in typing out a full question and expecting to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer you are not clear about.
To calculate the cost of debt you find the IRR of the after tax flows, as explained in detail in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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