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Hi John
Grateful if you tell me how the loan outstanding at start is 65m. Seems like I’m not getting the accounting equation correctly.
Thank you
In the second paragraph of the question, you are told that the MV is 81M. A total of 16M (12 + 4) will be share capital, and so the remainder will be from loans.
Shouldn’t we include the 12m in the loan? As it’s said the bank has agreed to lend the balance of the required fund.
Also, can you confirm that the market value of a company is the value of its equity which means assets minus liabilities
No. The 12M is being invested by the managers and employees personally (and 4M but a venture capitalist). The bank is provided the balance of 65M.
Usually by market value we do mean the value of the equity – yes. But just be careful always to read exactly what the question says in case they do mean different (which is not so likely).
Thank you very much Mr John for the clarification! Your lectures since I started acca have all been very helpful!
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