Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Financial structure vs business valuation
- This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.
- AuthorPosts
- November 27, 2015 at 4:36 am #285611
John,
I do not understand why M&M said that the value of the company is not affected by its financial policy due to, in my opinion, the Financial structure clearly impact WACC, in turn impact the valuation of business via NPV, pls. clarify
November 27, 2015 at 8:03 am #285642M&M only said that in the situation where there is no tax.
They then went on to look at the impact of tax and concluded that a company should be as highly geared as possible because of the tax benefit associated with debt borrowing – as they also said, this will reduce the WACC and increase the value of the business.
I do suggest you watch the free lectures on this (including the F9 lectures that go with Chapter 19 of the F9 lecture notes – discussion of M&M with and without tax is revision of Paper F9. All of the calculations relating to M&M only come at P4.)
November 30, 2015 at 2:35 am #286277much thanks, I will review as your suggestion
November 30, 2015 at 7:33 am #286305You are welcome 🙂
- AuthorPosts
- You must be logged in to reply to this topic.