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Dec 2010 q1

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Dec 2010 q1

  • This topic has 2 replies, 2 voices, and was last updated 11 years ago by AvatarJohn Moffat.
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  • November 26, 2014 at 1:20 pm #213428
    AvatarGoh
    Member
    • Topics: 9
    • Replies: 12
    • ☆

    Hi sir,

    For 2. Unsecured bond holders
    can you pls explain the statement “over 87% of the company for a total investment of 210m” and
    “The value attributable to them based on perpetuity cash flow is 223m which is more than their investment”

    why total of unsecured bond holders investment not 270m but 210m?? And cash flow 223m is less than 270m but not more than.

    Im confusing at this part,pls advise,thanks~

    November 26, 2014 at 2:11 pm #213444
    AvatarGoh
    Member
    • Topics: 9
    • Replies: 12
    • ☆

    Besides,for calculation on proposal 3, the 5% growth is an assumption or got mention in the question?

    The perpetuity factors used
    0.11-0.05, the 0.05 is that 5% growth??
    Thanks a lot~

    November 26, 2014 at 4:17 pm #213487
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54843
    • ☆☆☆☆☆

    The question says that profits in the parts division will grow by 5% per year.

    The 0.05 is the 5% growth (they are using the dividend growth formula which can be used to get the PV of any growing stream of flows)

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