John wants to invest in shares and is trying to decide between two companies (Company A and Company B) in the same industry. After doing his research he notes the following about the two companies: Measure Company A Company B Share Price $10 $15 Earnings Per Share $1 $1 Dividend $0.50 $1 PE Ratio 10 15 Dividend Yield 5% 7% Having critically examined the five measures, John decided to purchase 1.5m shares in Company B. At the time when John purchased the shares, the value of the equity shares was $3m and the par value was $0.40. Required: a. Explain how each of the measures identified by John could help him in deciding on which company’s shares to buy. b. How did the stock market help John to purchase the shares in Company B c. Calculate John’s shareholding in Company B and the cost on his investment? d.. What are the benefits John obtains by being a shareholder in Company B?
John wants to invest in shares and is trying to decide between two companies
(Company A and Company B) in the same industry. After doing his research he
notes the following about the two companies:
Measure Company A Company B
Share Price $10 $15
Earnings Per Share $1 $1
Dividend $0.50 $1
PE Ratio 10 15
Dividend Yield 5% 7%
Having critically examined the five measures, John decided to purchase 1.5m
shares in Company B. At the time when John purchased the shares, the value of
the equity shares was $3m and the par value was $0.40.
Required:
a. Explain how each of the measures identified by John could help him in deciding
on which company’s shares to buy.
b. How did the stock market help John to purchase the shares in Company B
c. Calculate John’s shareholding in Company B and the cost on his investment?
d.. What are the benefits John obtains by being a shareholder in Company B?
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