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Coeden co 12/12 amended

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Coeden co 12/12 amended

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • January 31, 2020 at 4:57 pm #560282
    rimshy
    Member
    • Topics: 95
    • Replies: 91
    • ☆☆

    I have doubt in part b where they asked about assumption that market value of equity will not change..
    Its written in estimating ba for offering hotel services change in the business risk is not considered please justify this point as per my understanding ba is calculated after implementing the proposal …

    Moreover how market value of equity is dependent on beta equity and cost of equity please explain

    January 31, 2020 at 4:59 pm #560283
    rimshy
    Member
    • Topics: 95
    • Replies: 91
    • ☆☆

    And how is retention ratio calculated in the same question

    February 1, 2020 at 10:21 am #560348
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54704
    • ☆☆☆☆☆

    The market value of equity is the present value of future expected dividends discounted at the shareholders required rate of return.

    The shareholders required rate of return depends on the riskiness of the shares, and the equity beta is the measure of how risky the shares are.

    I do explain this at length in my free lectures.

    February 1, 2020 at 10:23 am #560349
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54704
    • ☆☆☆☆☆

    The retention rate is 40% and is given in the question. Under the SOFP given in the question it states that Coeden Co has consistently used 40% of its free cash flow to equity on new investments while distributing the remaining 60% – if they distribute 60% then they are retained 40%.

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