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Business valuation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Business valuation

  • This topic has 5 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • September 4, 2021 at 11:51 am #634268
    syedmushahid
    Participant
    • Topics: 22
    • Replies: 50
    • ☆☆

    Hello sir
    Question in Kaplan kit:
    Using equity market value

    Ordinary shares of 7.8m have a nominal value of $0.25 and currently traded at ex div price 7.10.ANd economic recovery expects a share price growth of 8% in foreseeable future.

    According to me calculation should be like this
    7.8/0.25= number of shares 31.2
    31.2x 7.1(ex div price) x 1.08 (growth rate).
    But in solution they did not count growth rate and simply calculate 31.2×7.1
    Why?

    September 4, 2021 at 12:19 pm #634280
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    I do not have the Kaplan Kit (only the BPP Kit) and so without seeing the whole question I cannot help you (you have not said what the question requires).

    If it is labelled as a past exam question then tell me the name and the exam because I have all past exam questions.

    September 4, 2021 at 12:45 pm #634281
    syedmushahid
    Participant
    • Topics: 22
    • Replies: 50
    • ☆☆

    Sir it is MCQ section B Business valuation question.
    Required:
    Sir it asks how will we value the business using equity market value.

    The question is
    Ordinary shares of 7.8m have a nominal value of $0.25 and currently traded at ex div price 7.10.ANd economic recovery expects a share price growth of 8% in foreseeable future.

    Sorry to bother you again

    September 4, 2021 at 3:44 pm #634304
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    Again, I need to see the whole question.

    However, if the 7.8m is the total nominal value in $’s, then there are 31.2m shares in issue and the current market value of the shares is 31.2 x $7.10 = $221.52.

    September 4, 2021 at 4:10 pm #634317
    syedmushahid
    Participant
    • Topics: 22
    • Replies: 50
    • ☆☆

    yes this is what answer is in the solution. So growth in share is not incorporated when determining the value of the business on the basis of equity shares.
    Right

    September 5, 2021 at 9:34 am #634395
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    The current market value will already take into account expected future growth.

  • Author
    Posts
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