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In burcolene 12/07 (b)(ii),I have understood that book gearing of burcolene will increase by acquiring petrofrancais via bond issue.I’m unable to understand the impact on market gearing of burcolene if value is created through acquisition and that value is enjoyed by (a)predator owners (b) target company owners?and it’s impact on burcolene cost of capital?
It is stated ‘the implications for the cost of capital will depend on the bid price and the way in which the acquisitions value is distributed amongst the two group of shareholders ‘ please explain this line as well
The reason for one company acquiring another company is to make a gain as a result of e.g. synergy benefits.
Any gain accrues to the shareholders are results in an increase in the market value of the equity. The extent of the gain accruing to the shareholders of the predator company depends on how much of it is given to the shareholders of the target company (by paying a higher price) and how the acquisition is paid for (i.e. by shares, by debt, or by cash).
Depending on all the above, the resulting change in the value of the equity will result in a change of the level of gearing. (The market value of gearing is affected by all of them, the book value of gearing is affected by primarily the method of financing the acquisition – equity or, in this case, debt.)
The line you quote in your second post is really repeating this.
In “International Enterprises” 12/07 (b) the maximum dividend capacity is $24m i understood, but please explain the calculation and base of 18 days of cost of capital and reason for deducting $28m dividend from $143.20m.
Additionally, in (c) explain marketing gearing and why the examiner multiply the equity with 4.
I am wondering which answer to this question you are looking at.
The original question and answer from the examiner are not any longer applicable, because it included EVA calculations which are no longer in the syllabus.
The BPP answer does not mention 18 days but simply reduces the maximum dividend capacity by the change in the working capital of of 5.1M (from the cash flow statement).
The Kaplan answeris poor – should have shown some more workings!
If you calculate the operating cycle/ working capital cycle (recb’les days+inventory days-p’bles days) it comes to 18 days.
As the answer goes on to say, this means that extra funding is needed to cover those 18 days.
Market gearing is the gearing using total market values. The equity figure on the Statement of financial position is multiplied by 4 to get the number of shares because they are 25c shares.
Dear Sir
Is EVA no longer part of the AFM syllabus? There is a technical paper on EVA in the ACCA/AFM website.
Thanks
EVA was specifically removed from the syllabus for Paper AFM by the examiner many years ago!!
There is no AFM technical article about it.
EVA is still examinable in Paper APM and there is an ACCA Paper APM technical article on it as a result!
Sorry Sir. I don’t understand your reply. I was referring to this article.
https://www.accaglobal.com/hk/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/economic-value-added.html
Is EVA examinable in AFM paper or not?I repeat what I replied before.
EVA was specifically removed from the syllabus for Paper AFM by the examiner many years ago!!
It has not been examinable in Paper AFM for many years.The article you link to is an old article that is no longer linked from the ACCA page of technical articles for AFM precisely because it is no longer in the syllabus.
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