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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Doric co (pilot-12)
Sir,
1) Estimate of value based on perpetuity is given as 461 for answer.
If the debt was not paid by buyer, debt is deducted from 461 becuase this is FCF to firm. Am i correct?
2) is Management buyout like setting up a new business? Requirement c) sounds like Parent co is selling both divisions. And has nothing after that.
Could you please explain about this?
Thank you
1. Yes, correct
2. An MBO is effectively setting up a new business. Management are buying the company from the current owners (and borrow money to help them pay for it).
So regarding MBO, the previous equity value such as share capital become none? And new equity is recoginised in the books of MBO company? Which is amount invested by management?
Correct 🙂