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Doric Co (PILOT 12)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Doric Co (PILOT 12)

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
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  • February 18, 2021 at 9:55 am #610837
    Jiya024
    Member
    • Topics: 168
    • Replies: 56
    • ☆☆☆

    Dear John sir,

    In this question’s part c) I do admit that $50m is only a one time investment in NCAs, and so won’t be deducted from operating cash flow to arrive at FCF to firm, on which growth till perpetuity is applied.

    But I certainly feel that at least when we have found out the MV of firm, after that we should deduct the $50m. but we haven’t done so. why?

    Sincere Regards,

    February 18, 2021 at 2:33 pm #610858
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54738
    • ☆☆☆☆☆

    But investing $50 does not make the value of the firm any lower. The value of the firm is higher because of the growth being generated from the $50.

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