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Hi,
can anyone explain to me the following question.
1-X plc has a dividend yield of 8% and div cover of 2.4. what is the PE ration for X plc? (i always have prob in solve pe ration and i dun understand why pe ratio will link to div cover n div yield?)
2-the share proce of CP plc is $4 per share. the anounce a 1-5 right issue at $3.10 per share. what is the % of right offered to a shareholder does the shareholder need to take up so as to have no net cash flow resulting from te issue.
1. Dividend / MV = 8%; so MV = Divi / 0.08
EPS / dividend = 2.4, so EPS = 2.4 x diviPE ratio = MV / EPS
So….. PE = (divi / 0.08) / (2.4 x divi) = 5.21
For question 2, you need to watch the free lecture on rights issues where I go through a very similar example. Remember for their to be no cash effect, then the market value of the new shares at the TERP, must be equal to the market value of the existing shares at the existing share price.
If you divide top and bottom by divi, you get 1/0.08 divided by 2.4
this equals 12.5 divided by 2.4 which is 5.21
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