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Dear Tutor,
Can you please explain the depreciation calculation of the question?
Depreciation = ((1/3*$100+$50)*10%) = $8.3I don’t understand how/why we used the realisable value of the non current assets to calculate the depreciation?
Isn’t that amount already realised and used to fund the buyout?You will have to tell me which bit of the examiners answer you are referring to, because I cannot see depreciation of $8.3 anywhere in the answer.
Also, the equation you have written does not come to $8.3 (and the TAD in the question is 15% not 10%).
Dear Sir,
1. I didn’t understand for proposal 1, the total realisable value of assets not sold as going concern was used in calculating the return. Is the total realisable value referring to Realisable value of the total assets?
2) qn(i) return of the debt holders, Ans: Debt holders only receive 55·7c for every $1 invested and the shareholders receive nothing (see appendix, proposal 1).
Can my answer:
Payables 39 (70/260×156)
Bank overdraft 33 (33/260×156)
Unsecured loan stock 67 (120/260×156)
Other unsecured loan 17 (30/260×156)1. If they cease trading and close down entirely, then nothing is being sold as a going concern!
The total realisable value is the realisable value of all the assets.2. You could get the answer the way that you are setting out (except that in each case you should be dividing by 280 not 250, and the bank overdraft should be 60/280 and not 33).
However what on earth would be the point? They sell all of the assets and receive 156, and this is shares between all the liabilities of 280.why aren’t we deducting the 50 as investment in new assets.. if we were to do fcfe we would have deducted that… and we wouldnt have positive cash flow.. why are we doing p and l here ?
I don’t understand your reason for the second post. We say we will answer questions within 24 hours, which I always do – we do not sit permanently in front of the computer because we do have jobs to go to!! 🙂
With regard to your first post, I assume you are referring to the management buy out proposal. The question is not asking you to appraise whether the investment is worthwhile or not. The question is asking for the value of the company, and the value is the PV of the future receipts.
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