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Good day tutor,
I understood everything written in the answer for question 3(a) except this statement:
“it seems surprising that High K co’s debt levels fell during 2016 at a time of lower interest rates”Where in the question does it say interest rates have fallen? if I tried to calculate the effective financing rate, it would show that interest rates have risen. For example:
2014: Interest rate= 125/1,706 = 7.33%
2016: Interest rate = 100/1,246 = 8.02%
Could you help me on this?I agree with you – I can only think that the first draft of the question did mention falling interest rates, but that it was removed in the final version for the exam (but the answer was not amended). You cannot have been expected to write this in your answer 🙂
Hi John.
I am not sure if I was supposed to create a new post but I decided to post my question here because it relates to the same exercise.
My question relates to the calculation of the dividend yield. They divided current year’s dividend by current year’s share price. Shouldn’t it be current year’s dividend divided by last year’s share price?No – what the answer has done is correct. We use the current dividend and the current share price.
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