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Equity value

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Equity value

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 27, 2022 at 11:06 am #664416
    Gigakutkha
    Participant
    • Topics: 26
    • Replies: 11
    • ☆

    Hi,
    I am referring to question CHRYSOS CO (MAR/JUN 17).

    The question b(i) requires calculation of equity value.

    In the answer, they calculate estimated corporate value, which is $47,944m, and then subtract value of debt only ($1,800 m).
    I think that the value of cash and cash equivalents (1,439 m) should be added and the value of equity must be 47,944-1,800+1,439.

    Are the both approaches acceptable or am I wrong?

    Thanks,
    Giga

    August 27, 2022 at 5:07 pm #664443
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53174
    • ☆☆☆☆☆

    You are wrong unfortunately.

    The 47,944 is the total value of the business – equity plus debt, which is always equal to the total value of the net assets (including cash etc..)

    August 28, 2022 at 4:48 pm #664535
    Gigakutkha
    Participant
    • Topics: 26
    • Replies: 11
    • ☆

    Thanks,

    Just to clarify: my understanding is that in this question, we calculated Enterprise Value [EV] (but the examiner refers to it as a “corporate value”, which equals 47,994 mln).

    EV=Market Cap + MV of Debt – Cash and cash equivalents

    Is EV something different from the “corporate value”? Didn’t we calculate EV here?

    Thanks,
    Giga

    August 29, 2022 at 7:16 am #664560
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53174
    • ☆☆☆☆☆

    Enterprise value is not a term that is used in ACCA exams.

    However the value of the company (corporate value) is the market value of equity plus the market value of debt.
    There is no reason to subtract cash and cash equivalents!

  • Author
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