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Dear John sir,
In this question’s “b)(i)An extract of the financial position and an estimate of Chrysos Co’s value to the equity holders, after undertaking the restructuring programme.”
I have a doubt pertaining to value created for Chrysos co’s shareholders post-resconstruction. The doubt is that MV of mining business of $47944.416 should have been added with sale proceeds generated by selling the manufacturing business to MBO team at $3288.05568, and the ‘other debt’ paid off of $1050 should have been deducted along with current Bank OD of $1800, to arrive at MV of equity holders, which is equal to
$48382.47 and this in my opinion should have been the MV of equity post-reconstruction.Which is apparently not what has been done. other debt paid off has been excluded and so has the MBO team payment. so, why has this been done???
No.
The value of the equity will be the present value of the future cash flows.
Had you been asked for an asset valuation then your points would have been valid, but that was not asked for (and would have been of little relevance anyway).
ok so i see what you are trying to say.
But i was just trying to compare this question with CIGNO CO (SEP/DEC 15) and VOGELCO (JUNE 14), in cigno the estimated proceeds from sell off of medical equipment manufacturing division were added when trying to find the value created for shareholders.Or even in case of Vogel co. (june 14), Tori’s dept C’s cash proceeds were added to arrive at combined MV of equity.
However, those were instances of acquisition and then asset strip-off procedure. So, am wondering if the different treatment for Value for shareholders is happening because of differences in scenarios?
As in if there is an acquisition and then asset strip-off then we add the sale proceeds and deduct the liability pay off of target from proceeds, to arrive at value created fro shareholders post acquisition. However, if its an interenal restructuring, and we sell off some of our assets, then no disposal proceeds would be added or pay off liability deducted to arrive at value created fro shareholders post-reorganisation.
Is that right? And if it is then that means post-reorganisation we are looking for PV of future cash flows but post-acquisition we are looking at overall immediate gain for acquirer’s shareholders?
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