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I have a question for the problem: hanwood (sep/dec2021) ( page 40 BPP AFM kit) . 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 not the liabilities (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)? As i see the similar thing is at the eview cinemas ( a problem in sep/dec2017), the profit from sales of a division equals the amount which non current assets value is subtracted from the PV of FCF
Thank you for waiting until I. returned home 🙂
It depends on the wording of the question, but unless something is specifically saying different it would be normal if a division is sold that it is the assets being sold (and the liabilities remain owing by the company that remains).
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