I encountered a question on the Mock that bothered me. The last Q asked about the validity of two statements. The first statement said something about the FCFE valuation method being better than Discounted Dividend Valuation because this company’s dividends were “substantially” different from its FCFE. I calculated FCFE to be 159m. Over 411m shares, that’s 0.386 per share. The Div was reported to be 0.36 per share. Given the discrepancy of 0.026, I didn’t believe this to be substantially different, so I said that statement was wrong (though of course it would be a correct statement if the FCFE and Div were substantially different). I was wrong - HOW do you know when the difference is substantial? A 2.6 cent difference could easily be something they are rectifying over a period of two years or something, and it seems like a negligible difference anyways. Any advice? The answer provided made it seem like the actual Dividend vs. FCFE differnece of this company was not relevant to the answer, which is crazy because the statements seemed directly related to the company in question.
Bump. Anyone have any thoughts on this?
I don’t remember the question, but remember these are per share figures. If a company has 10 bn shares outstanding, that’s a 2.6 million discrepancy.
It worked out to, I believe $9m discrepancy, but the absolute figure should be less relevant than the relative figure anyways. Any idea though about how to answer this kind of question? At what point does it become “substantial”? Or is the answer provided incorrect?