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Part (i) Estimate the additional value for Avem Co if it acquires Fugae Co without the luxury transport project.
Why is the interest payments from the bonds not deducted from the valuation if the Ke is being used to value the equity?
Gordons growth approx and growth model used to estimate equity.The question says that the free cash flow to equity is 7.2 times it’s current market value, so this is already after subtracting any interest.
(You can find lectures working through the whole of this question (and discussing the approach to the question) linked from the following page:
https://opentuition.com/acca/afm/afm-revision-lectures/ )
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