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Hallo sir kindly assist
X plc has a dividend yield of 8% and dividend cover of 2,4 What is the Price ratio for XplcPE ratio = MV / EPS
Dividend yield = D/MV = 0.08. So MV/D = 1/0.08 = 12.5
Dividend cover = EPS / D = 2.4. So D/EPS = 1/2.4
PE ratio = MV/eps = MV/D x D/EPS = 12.5 x 1/2.4 = 5.21
Dear sir why do we use the 1? Like 1 / 0.08 or 1/2.4? Where does 1 come from?
This is actually rather basic arithmetic!
If D / MV = 0.08, then inverting both sides gives MV / D = 1 / 0.08.
If you are not happy with that then:
D / MV = 0.08
Multiply both side by MV:
D = 0.08 x MV
Divide both sides by D:
1 = 0.08 x MV / D
Divide both sides by 0.08:
1 / 0.08 = MV / DOh that makes perfect sense now. 🙂 Thank you so much spending your weekend to answer this. Appreciate it.
Obviously it can!!
But why learn extra equations when there is no need. This has only been asked once in the exam. Other times he asks different things which would need inventing a different equation. He is deliberately testing that you understand what the basic measures are – not that you can learn equations.
Sir there are no tips for sep 2015 exams i have studied alot and covered all areas but what do you think could be tested this time? I mean risk, Value for money, payback, ARR not been tested for ages.
You can find tips from BPP etc elsewhere on this website.
Because of the multiple choice questions it is impossible to give meaningful tips.
(Risk has been examined in virtually every exam. Value for money, payback and ARR are only really ever likely to be examined in Section A.)
Thank you Sir. Last sitting Risk FRA was heavily examined and Forward rate .Money market. Nice easy 10 marks but sadly I did not do the exam. Something like that would be nice but then again examiner does not repeat things straight away. I am surprised WACC calculation was not tested this is usually in every exam, I highly expect a WACC question this time.
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