Market Value of Preference Shares

MIMuhammad Irfan6y ago

Hi In Mar-Jun 2019 Hybrid paper for the question 31 which requires the calculation of WACC the data for preference shares is: Book value : 6m nominal value of shares : $0.75 Ex-Div Share price : $0.64 the examiner calculated the MV as follows: 0.64/0.75 x 6m = 5.12 shouldn't it be $0.64 x 6m = 3.84 can you explain the logic behind the examiner's calculation and also which method is correct because i always use the second method. Thanks

Oopentuition_teamAdmin6y ago#1

The total book value is the total nominal value. If the total nominal value is $6M and the nominal value per share is $0.75, then the number of shares in issue must be $6M/$0.75 = 8 million shares. Therefore the total market value is 8M x $0.64 = $5.12M

MIMuhammad Irfan6y ago#2

Thanks now i got it

John MoffatTutor6y ago#3

You are welcome :-)

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