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Hello John,
In MJ21 Q1, Estimate of Kawa Co equity value if demerger is undertaken. the Value attributable to equity was calculated as 75% of the total corporate value. Would you please clarify how the 75% was calculated.Regards
The question says that Kawa will maintain its capital structure after the unbundling.
The part of the business which will become Kama is 24.5% of Chakula’s total equity value and so it 24.5% x 1,000/0.5 x $2.45 = $1,200.5
Kawa takes the loan notes B which have a value of $400.Therefore the equity is 1,200 / (1,200 + 400) = 75% of the total value.
Hi sir,
In the latest Kaplan Exam Kit, there is nowhere mentioned that Kawa makes up 24.5% of Chakula. Furthermore, I checked in the previous exam paper and there was some mention of equity beta and Buni Co, which is nowhere to be found in the latest kit. But they do mention about the capital structure being maintained.
So is it advisable to directly subtract the 400m of debt to calculate the Equity Value of the Company?
And if we dont do it, why do we subtract it in other questions?
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