Dear All,
Please resolve following points for the given problem:
1. Why ex dividend price is taken after deducting 1.4 and not 1.4(1.06) as current price should be reflected of D1 and not D0. 2. Why answer for 2nd part is not calculated taking into ex right price as usual computed using weighted average
3. For calculating market capitalisation , total inflow is considered and not NPV?
1 )By your logic, current price is reflective of all the future dividends – why only D1.
When we say the stock is cum dividend, it means dividend has been declared, but the record date has not come. So anybody who buys the stock today, will get dividend on that record date. Hence, that dividend has to be deducted from the stock price to get the ex dividend stock price.
2) We use the weighted average concept, when we are not given any information about how the funds raised from rights issue are to be utilized.
3) Because, no. of shares are changing.
You may do yourself a world of good by doing the following question –