CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 87 Discussion

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

Question #: 87
Topic #: 6

NNN is a company financed by both equity and debt. The directors of NNN wish to calculate a valuation of the company's equity and at a recent board meeting discussed various methods of business valuation.

Which THREE of the following are appropriate methods for the directors of NNN to use in this instance?

ATotal earnings multiplied by a suitable price-earnings ratio.

BCash flow to all investors discounted at WACC less the value of debt.

CCash flow to all investors discounted at WACC.

DCash flow to equity discounted at the cost of equity less the value of debt.

ECash flow to equity discounted at the cost of equity.

Show Suggested Answer

Suggested Answer: A, B, E

by Terrilyn at May 18, 2024, 10:01 PM

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Jesusa

8 months ago

I bet the board meeting was a real 'NNN'credible discussion. Sorry, couldn't resist the pun!

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Ellsworth

7 months ago

D) Cash flow to equity discounted at the cost of equity less the value of debt.

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Renea

7 months ago

B) Cash flow to all investors discounted at WACC less the value of debt.

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Blossom

8 months ago

A) Total earnings multiplied by a suitable price-earnings ratio.

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Nicolette

9 months ago

I wonder if the directors of NNN are as creative as their company name. Gotta keep things interesting, am I right?

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Florinda

9 months ago

This is a tough one, but I'd go with B, C, and E. Diversifying the approach is key, you know?

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Albina

8 months ago

Definitely, E is also crucial for calculating the valuation of the company's equity.

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Alesia

8 months ago

I agree, C is important too as it takes into account the weighted average cost of capital.

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Glenn

8 months ago

I think B is a good choice because it considers the value of debt.

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Steffanie

9 months ago

Hmm, I'm not sure about option D. Discounting the cash flow to equity at the cost of equity AND subtracting the debt value? Seems like overkill to me.

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Celestina

9 months ago

I agree with Ciara. B and C are the way to go. Gotta love that WACC discount!

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Sueann

8 months ago

I agree, WACC discount is key in this situation.

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Mirta

8 months ago

I think B and C are the best methods for valuation.

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Blossom

8 months ago

I agree, WACC discount is key in this situation.

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Temeka

8 months ago

I agree, C is also a good option to consider.

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Evangelina

8 months ago

I think B and C are the best methods for valuation.

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Glennis

8 months ago

I think B is the best method for valuation.

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Ciara

9 months ago

Option B and C seem like the most appropriate methods for valuing the company's equity. Discounting the cash flow to all investors at WACC is a solid approach.

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