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Dear Sir,
I would like to outline my approach to question 4 part A and learn about Your valuable opinion on this.
What i did is that I calculated theoretical ex right price… To notice, i used net cash raised after deducting issue costs…The figure i got was 3.38. Then i found the nominal value of redeemed loans, by multiplying net cash raised by 100/104…i know, i missed out five percent premium, but method is more important in this case 🙂 then i performed exactly the same procedures as You did, got the new earnings after tax, divided it by 20 million shares ( which is incorrect, i did not incorporate 1/5 rights issue, should have divided by 24 million shares, again minor mistake) so that i got new eps. We both got 8.33 and i multiplied this figure by new eps to get the new price, and then i compared this price to theoretical ex rights price… My new price per share (wrong one, due to two mistakes mentioned above) was higher than terp so i said that shareholder wealth will be increased. How You do You reflect on this method?
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I used the same method lol, though I used the rights issues in determining the number of shares. I hope we can at least get some credit
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@gvtftf how did you estimate the growth rate? I used a different method. I first calculated the dividends in 2014 then 2015 (using the payout ratio) and then estimated the growth rate using the geometric method. I got about 8.5%. I hope Mr Moffatt can also comment on this
Kolklee, i got the same! 8.5%! Mr Moffat has pointed out that we could get full marks for it. I think he will confirm this as soon as he kindly reviews my post 🙂
It is impossible for me to know what the examiner will decide, but based on what he has done in the past I think he will probably still give the marks for using different growth rates.
Mr Moffat, but what about the method outlined by me above, regarding questiin 4?
The approach seems good enough to get reasonable marks.
However, please don’t ask me to say how many marks – it is impossible for me to say.
As I wrote earlier, I would expect that the examiner will probably allow several different estimates for the growth – yours seems sensible enough.
Thanks, dear Sir, but I meant my method regarding question 4, not on divid growth model? Could You please have a look on my first post in this thread? I would like to know Your opinion on my question 4 method 🙂
Thanks for the one regarding growth though!
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