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Hi,
Question relating to June 2013 question 4a.
Below is my workings, i dont understand why i am wrong with this approach
Years Cfs Df PV
Divd 1 0 – 0
Divd 2 0 – 0
Divd 3 $0.25 0.772 0.193
MV- DVM 3 $5.2 0.772 4.0144
Total $4.2074
$4.2074 * 10m shares = $42074000Po = $0.25 (1+0.04)/ (0.09-0.04)
=$5.20The examiners answer is $42.1m
I understand there are different ways of doing this kind of questions, would appreciate if you could correct where i have gone wrong in my above workings.
Regards
Your answer is perfectly correct, and the difference is due to round in both the examiners answer and in the tables you have used in your answer.
(If you want to check I am correct in saying this, the examiners answer is 50/(1.09^2) = 42.084M and he has rounded it to 42.1M. In your answer, if you use the 3 years discount factor as 1/(1.09^3) without rounding it to 3 decimal places, then you will end up with exactly the same figure of 42.084M 🙂 )
Don’t worry about rounding in the exam – you would not lose any marks for your answer.
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