• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

regarding cost of capital

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › regarding cost of capital

  • This topic has 6 replies, 2 voices, and was last updated 9 months ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • April 15, 2022 at 6:39 am #653326
    dennissherpa101
    Member
    • Topics: 58
    • Replies: 60
    • ☆☆

    Sir if the question asked the market price in 2 years time. if used the growth rate of dividends as rate of growth of market price. but if we are discounting via cost of capital gives us present value( market price @ time 0. if we unwind the discounting using the same rate should it also not give the market value @ year 2 ? if suppose share holders want 12% will not the fix the price in that rate also in time 2?

    April 15, 2022 at 8:52 am #653344
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    The MV in 2 years time will be the present value of the dividends from time 3 onwards discounted to time 2 at 12%.

    The current MV is the PV of the dividends from time 1 onwards discounted to time 0. The dividend stream from time 3 onwards will be exactly the same as the dividend stream from time 1 onwards except that they will all be higher by 2 years growth. Therefore the PV of the dividends from time 3 onwards when discounted to time 2 will automatically be higher than the current MV by 2 years growth.

    I explain this when working through example 6 part (c) in my free lectures working through Chapter 17 of our free lecture notes.

    April 16, 2022 at 5:16 am #653414
    dennissherpa101
    Member
    • Topics: 58
    • Replies: 60
    • ☆☆

    But sure you used the dividend growth rate rather than cost of capital in your example. To calculate MV in two years time.
    if cost of capital is 10% 6% & dividend is 10c per annum is growth rate then present value =265c
    shouldn’t the market value in two years time be 265=x(1+0.1)^2? but as I am doing this I realise I have not integrated the growth factor. How do I do it sir?

    April 16, 2022 at 6:17 am #653415
    dennissherpa101
    Member
    • Topics: 58
    • Replies: 60
    • ☆☆

    sir what if there was no growth?

    April 16, 2022 at 8:08 am #653422
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    The market value in 2 years time is the current market value x (1+g)^2 where g is the annual rate of growth (just as I explain in my lecture and as I wrote in my previous reply).

    If there is no growth then the market value in 2 years time will be the same as the current market value, both from using the formula above but also from using logic because if the expected future dividends have not changed then there is no reason for the market value to change.

    April 16, 2022 at 9:30 am #653424
    dennissherpa101
    Member
    • Topics: 58
    • Replies: 60
    • ☆☆

    Got is sir. Thank you so much. sir can I say this is the current market price if people have full knowledge of the market. Cause from my experience the current market price is never the current market price from valuation. Although I would say I would buy if the (sticker price) is lower than that of the market price from my valuation.

    April 16, 2022 at 2:24 pm #653434
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    The market price is based on the dividends that shareholders as a whole are expecting in the future. If you think that the company will do better than shareholders as a whole are expecting, then you would be prepared to buy the share at the current market value, because if you are correct and the company does do better than expected the market value in the future will increase.

  • Author
    Posts
Viewing 7 posts - 1 through 7 (of 7 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • baraka42 on PM Chapter 13 Questions Standard Costing and Basic Variance Analysis
  • baraka42 on PM Chapter 13 Questions Standard Costing and Basic Variance Analysis

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy