CIMA Exam CIMAPRA19-F03-1 Topic 7 Question 81 Discussion

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

Question #: 81
Topic #: 7

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 Nichelle at Mar 04, 2024, 04:28 AM

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Lettie

8 months ago

I think both options B and C are suitable methods for valuation, it depends on how we want to approach the calculation.

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Francis

8 months ago

I personally prefer option B, cash flow to all investors discounted at WACC less the value of debt. It takes into account the company's capital structure.

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