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Hi,
I need help on GWW Co question Dec 2012.
1) i have been able to calculate the growth rate using historic dividend growth rate but then how do we calculate the value? any formulae for this one?
In answer sheet it is:
Value of GWW Co = (6m x 1·0627)/(0·09 – 0·0627) = $234 million2) How the retention ratio is calculated?
In answer sheet it is:
Historic retention ratio (b) = 100 x (3·5 + 3·7 + 4·1 + 4·1)/(8·5 + 8·9 + 9·7 + 10·1) = 41%Where do we get 3.5, 3.7?
Thanks for helping.
1. You use the first formula on the formula sheet!!
(You really should watch the lectures on the valuation of securities.)
2. The retention rate is the retention/profit. The amount of profit retained is the profit less the dividend. So for 2009, 8.5 – 5.0 = 3.5. For 2010, 8.9 – 5.2 = 3.7.
John!
We r in 2012. What if we only find retention ratio only relating to 2012. In this case 1-(6/10.1)=40.6%
Beacuse ROE in the ans is also relating solely to 2012. He didnt take avg profit.
Will we get full or any marks for this?
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