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Business valuation

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

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
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  • December 20, 2022 at 6:34 am #674937
    sind
    Participant
    • Topics: 58
    • Replies: 38
    • ☆☆

    BlackCo has in issue 5% irredeemable loan otes, nominal value of $100 per loanote, on which interest is shortly be paid. Black Co has a before-tax cost of debt of 10% and corporation tax is 30%
    Options

    $55 $50 $75 $40

    I got $50 , but i didn’t get why they add $5. I calculated the value based on investor’s perspective. bt it seems they got answer based on company’s perspective. I’m confused about the question

    December 20, 2022 at 8:45 am #674952
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    The answer is based on the investors perspective.

    It is because the question says that the interest is shortly to be paid, and so we need a cum interest value.

    The ex interest value is indeed $50, but they are going to also receive interest immediately of $5, which give the total present value (and therefore the market value) of $55.

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