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According to the Qn: MACKONIS in the BPP REVISION KIT
1. How is the PV of cashflows 5years to perpetuity calculated, please help me find a simpler way?
2. How is the 359.94m n 1.71$ per share n additional value of 29.5 calculated for makonis on 30% premium and same applies to the makonis values for 50% premium in part b
3. Help me clarify the same premium calculations in part c1. There is no simpler way 🙂
To calculate an inflating perpetuity we have no choice but to use the dividend valuation formula from the formula sheet (it works for any inflating perpetuity).
However, it gives the present value only if the first flow is in 1 years time. If the first flow is in 5 years time (i.e. 4 years late) then it gives a PV 4 years late and so needs discounting for 4 years to get the current PV.2. The addition value created is $503.94M. If $144M of this is going to Nubola’s shareholders, then the shareholders of Makonis will get the benefit of the remaining £359.94M
3. My answer to (2) should clarify the calculation in part (c)
(I do assume that you have already completed your studying – either from our lectures or from a study text? Trying to learn just from questions and answers will not work for P4).
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