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doric

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › doric

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
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  • December 2, 2021 at 3:24 pm #642319
    mehazia
    Participant
    • Topics: 54
    • Replies: 6
    • ☆☆

    Amount of management buy?out funds needed to pay shareholders 60
    can you please explain how did we get 60 here.

    also why are we taking cash flows before int payment?
    why is it not wrt free cash flow to equity?

    December 2, 2021 at 4:20 pm #642331
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    From the SOFP there are 100M shares in issue. The current share price is 50c per share (from the first paragraph of the question), and proposal 3 in the question says that the shares will be repurchased at a premium of 20%. So they will be paid 60c per share, and so in total $60M.

    To get the value of a company we always discount the flows before interest at the overall cost of capital. (We discount the after interest flows at the cost of equity in order to get the value of equity.)

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