CIMA Exam CIMAPRA19-F03-1 Topic 2 Question 75 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 75
Topic #: 2

Company BBB has prepared a valuation of a competitor company, Company BBD. Company BBB is intending to acquire a controlling interest in the equity of Company BBD and therefore wants to value only the equity of Company BBD.

The directors of Company BBB have prepared the following valuation of Company BBD:

Value of Equity = 4.63 + 5.14 + 5.56 = S15.33 million

Additional information on Company BBD:

Which THREE of the following are weaknesses of the above valuation?

AFree cash flows to all investors should be discounted at the cost of equity of 10% rather than WACC of 8%.

BThe valuation is understated as forecast future growth has been ignored beyond year 3.

CThe valuation is understated as the directors have failed to include a perpetuity factor in the calculations.

DThe approach used calculates the value of the total entity not the value of equity.

EThe valuation is overstated as the directors have failed to deduct tax from the free cash flows.

Show Suggested Answer

Suggested Answer: C, D, E

by Rolland at Oct 18, 2023, 01:10 PM

Limited Time Offer

25%

Off

Get Premium CIMAPRA19-F03-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Currently there are no comments in this discussion, be the first to comment!