CIMA Exam CIMAPRA19-F03-1 Topic 5 Question 44 Discussion

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

Question #: 44
Topic #: 5

A company's Board of Directors wishes to determine a range of values for its equity.

The following information is available:

Estimated net assetvalues (total asset less total liabilities including borrowings):

* Net book value = $20 million

* Net realisable value = $25 million

* Free cash flows to equity = $3.5 millioneachyearindefinitely, post-tax.

* Cost of equity = 10%

* Weighted Average Cost of Capital = 7%

Advise the Board on reasonable minimum and maximum values for the equity.

AMinimum value = $25.0 million, and maximum value = $35.0 million

BMinimum value = $25.0 million, and maximum value = $50.0 million

CMinimum value = $20.0 million, and maximum value = $35.0 million

DMinimum value = $20.0 million, and maximum value = $50.0 million

Show Suggested Answer

Suggested Answer: A

by Kimbery at May 03, 2022, 08:45 PM

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