June 2009 BBS stores

[sanjeeb]

Hi,
I need to know how Value of retail section and value of property is determined in this question for part b of the questions.
retail value=4338 and property value =2462.

Thanks in advance.

[John Moffat]

Total value is 425 x 4 = 1700 shares at $4 = $6800.

Value of property (from the second table in the question) is 2297 + 165 = $2462

Value of retail in the difference.

[ameera98]

I have a doubt with the weighting of each part of the business. if we are using the amount invested in the business as the weight, then for ppty it should be 2462 out of 6500 and for retail 4038/6500.
Why is the denominator 6800 and not 6500. I understand that 6800 is value of equity.
Secondly, i asked this qs before. But the thread is closed to new replies. The reduction in basis points by 30 bp..should be accounted for the 2 yr loan also. Why is onlythe 6 yr loan interest changing because of credit spread change?

[John Moffat]

The total value of the business is 6,800.

The value of land and buildings are 2297 + 165 = 2462 (and these are ‘fair’ values because the existing property has been just revalued and the assets under construction are valued at their market value).

Therefore the ‘fair’ value of the fixtures and fittings must be the balance of 4338 (4038 is simply the book value).

Option 1 (which is what you asked about) is repaying the 2 year debt in full. According to the question, it is only repaying the 2 year debt that improves the credit rating and therefore will affect only the remaining 6 year loan.

[ameera98]

Thanks a ton. This annoying question makes a lot more sense now.

[John Moffat]

You are welcome 🙂

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