ICAI Suggested answer SFM Question confusion

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Dhruva Hegde

Chartered Accountant

230 Points Joined April 2008

Hi frnds,

I have gone through the sug answer of SFM may 2011. in that Q4 answer they have calculated cost of capital in different formula and i have calculated by using this formula Po= D1/Ke-g so i got Ke as 22.91% but they got 21.87%. My question is since they asked us to calculate Ke we can use any formulae given in the study material appropreate to solve the question right? it need not be the same formulae what they have given in sug answer right?

another, related to question no 6 ,they have given in the study material Gordons formula in two ways

1. Po=D1/Ke-g ( this is there in theary part of study material)

2.Po=E(1-b)/Ke-g( this is there in illustrations part of study material)

But they solved based on formula 2nd and i have solved based on 1st. will they make it fully wrong what i have solved i am worrying frnds.....

Replies (5)

YASH JAIN

ARTICLE

554 Points Joined August 2009

Both of the answers are correct.

THe concept of both the formulaes are same yaar.........so i dont think or am sure they would not deduct you marks as u r conceptually correct though you may be slighlty arithmetically wrong. but in no case they can deduct you marks as u seem to think. chill yaar.

MaNThaN Shah

Student

315 Points Joined July 2009

Is there any othr odd ans in any othr paper ??

Kunal

Risk Analyst

299 Points Joined January 2009

Well for qstn 4 the difrnc in ur ans is cz u must have taken dividend as D(0) whereas in suggested solution is given by assuming it to be D(1). The same qstn is in practc manual too n in that too they have solved it taking it to be D(1) n not D(0) . N in 8th qstn u can do it either way....both are correct...moreova the infrmtn provided in qstn is contradictory as retention ratio comes out to be 75% n in qstn its 40%. so full marks wil be given even if u hv solved it using 40%.