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Hi John,
For this question… I have several queries I would want to ask
1. The question did not mention about it having 2 separate businesses while the answer had to separate the Property and Retail business. Are we expected to assume such information in the exam?
2. In the calculation of part B, I am quite confused why the answer is stating that the Value of the business equal to its current Equity value = 6800? Shouldn’t the total value of business = Total Equity market value + debt market value?And then, why does this total equity value equate to the current value of Property business’s asset fair value + the Retail business value (to be derived)? I have never seen this approach mentioned anywhere in the study text (using book value to estimate proportion of business). Is it assuming that the property business value is all derived from the current fair value of the properties, while the balancing amount must be from the Retail?
Thank you.
1. The question says that they will be selling 50% of the land and buildings and 50% of the assets under construction. The company is ‘stores’ and so other than the property it is a retail business.
2. Part (b) is not assuming that the value of the business is 6,800. It is assuming that the value of equity is remaining at 6,800 (the question says to assume this).
And yes, the value of the retail business is the remained after removing the value of the property part.
(This question was set by the previous examiner – many of his questions were poorly worded. The current examiner makes things much clearer.)
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