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sir i have gone through all your related lectures but still i need your help solving these mcqs
1- a co. has just paid a div of $0.23 per share. SHs are expecting the div to stay same for the next year and then increase @3%pa thereafter
SH req rate of return=12% tax=25%
current MV per share?2-share price is $5.20 at the end of the year which is $0.60 higher then at the start of the year. paid a div of $0.45 per share during the year. total share holder return for the year?
3- if we are given SHs req return, dividends to calculate growth, and number of shares issued
how to arrive at the figure for market capitalisation?
thankyou for your time1 It is the dividend valuation formula from the formula sheet.
(Do(1+g))/(Re-g). The (Do(1+g)) on the top of the formula represents the dividend in 1 years time which is usually the current dividend plus growth. Here, the dividend in 1 years time is actually 23c. So the MV is 23/(0.12 – 0.03) = 256c ($2.56)2. The share price at start of year was 5.20 – 0.60 = 4.60
Over the year there is a dividend of 45c and growth in share price of 60c
So the return over the year is (0.45 + 0.60) / 4.60 = 22.83%3. You calculate the MV per share using the dividend valuation formula, and multiply by the number of shares.
Its quite clear.. One thing, referring to the second point we need to take ex. Div valve of share for calculation so thats why you subtracted $0.60
but if the dividend was not paid till the end of the year we would have to take $5.20 as MV?
Also, assuming you have used growth model why have you not added growth at the end
Req return = [Do(1+g)/Po] +g
Thank you so muchI subtracted 60c to get the MV at the start of the year (because the question says it is 60c higher at the end of the year than at the start of the year!)
The dividend growth model is not relevant because we are only asked for the return over the one year.
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