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- This topic has 5 replies, 2 voices, and was last updated 1 year ago by John Moffat.
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- August 18, 2023 at 11:46 am #690159
Extract from the solution
” If the cash payment to Kawa Co’s shareholders is increased to $0·71/share, to bring it in line with the value obtained from the demerger, and the funding is sought from debt financing, then the debt percentage compared to total firm value will increase
to 53·8% (as shown below):
$0·71 x 2,000m shares = $1,420m.
Market value of equity: $2,933·7m, 46·2%
Market value of debt = ($1,601·7m + $1,420m + $400m) = $3,421·7m, 53·8% ”At cash payment of $0.66, MV of equity was 4253-1320= $2933, how can it be the same for cash payment of 0.71
Shouldn’t the MV of equity be = 4253- 1420 = $2833m??I think the solution is wrong…isn’t it??
August 18, 2023 at 5:10 pm #690174Please tell me the date of the exam (although I do have the past exam papers, I cannot remember the name of every question in every exam 🙂 )
August 18, 2023 at 9:34 pm #690210March/ June 2021 sir
August 19, 2023 at 9:21 am #690248You are correct in what you wrote 🙂
August 19, 2023 at 9:34 am #690252Thanks a lot sir
August 19, 2023 at 3:54 pm #690263You are welcome 🙂
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