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Dear John,
I am looking at the solution for Q3(a) where are are asked to calculate sales value of children’s shoe business and then work out the impact of this sales on SOFP.
The one I cannot get my head around is the latter part from above. When working out the investment in NCA solution shows (525-175=350). However, I am trying to understand the logic behind this workings and I cannot fathom it. How does this the investment/adjustment in NCA amounts to 350m$ at all please? The only clue in relation to children’s shoe business NCA in the question is “The rest of the sale proceeds will be invested in NCA.”
Please could help me understand this? Is there clue I am missing from the question that explains the working as shown above?
Many thanks for your help in advance,
Kind regards,
RaiThe total proceeds from the sale are $1,217.
Of this, 175 is used to repay the loan notes, and 692 is used to increase the current assets.
This leaves 1217 – 175 – 692 = 350 for the non-current assets
I have a question for this problems. For this question, i see that in the answer, to calculate profit from sale of children’s shoe division, the total non-current & current assets, but the liabilities of the division are not referred to, is deducted from NPV of free cash flow . I want to ask, why the sale of a division of a company, only assets not liabilities of the division are taken as cost of that division? Is it usually assumed in AFM exam that if profit from sale of a division of a company is asked, is it equal to the total value of assets of the division subtracted from the present value of free cash flow (or other way of valuation of that division)?
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