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- This topic has 3 replies, 3 voices, and was last updated 3 years ago by John Moffat.
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- September 9, 2019 at 12:32 pm #545652
Hello Sir,For PYQ March /June 2017 Q1 Appendix Three :Estimate of value
As the examiner answer also mentioned can use free cash flows to equity and discounted with Ke
I have calculated at this way, but the amount has some different so I worry I had done it wrong
1)The interest payment is it $81m?And I get the FCF to equity is $3622m(PBT deduct int $81m and accounted for 18% tax)
And I take the $3622 times with growth rate of 4% and accounted for perpetuity with growth(/0.1409-0.04) and getting the answer of $37333, which is different from the $46144 of the examiner answer.
Please advise me if I’m doing wrong,Thank you.
September 10, 2019 at 10:37 am #545733What you are doing is correct. I know it seems a big difference, but it is a combination of rounding (in for example the WACC) and the assumptions made between FCFE and FCF. You would still have got the marks.
February 11, 2021 at 8:55 am #610012Hi John, I was able to get the FCF to perpetuity of 4698 but i proceeded to multiply by the discount rate of 10% to get the present value. The answer did not do this step.
February 11, 2021 at 2:13 pm #610045I do not know why you discounted for an extra year.
The dividend growth model gives the PV of an inflating perpetuity for which the first flow is in 1 years time.
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