Question 1

**Section B - Case 2: AeroDynamics PLC**

*Scenario:* AeroDynamics PLC, an aerospace manufacturer, is evaluating the acquisition of a target company, HeliParts. HeliParts has just paid an annual dividend of $0.40 per share. Historical dividend data shows that 4 years ago, the dividend was $0.32 per share. HeliParts' cost of equity is estimated at 12%. The company has 5 million ordinary shares in issue. HeliParts also has $10 million of 8% irredeemable bonds trading at $105 per $100 nominal value. The corporate tax rate is 25%.

Calculate the historical annual dividend growth rate for HeliParts. (Express your answer as a percentage to two decimal places, e.g., 5.25).

Accepted Answer

Use the compound growth formula: g = (Latest Dividend / Oldest Dividend)^(1/n) - 1. Here, n is 4 years.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using n=5 instead of n=4. If the dividend was paid 4 years ago, there have been 4 periods of growth.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 4

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