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Kawa co J21

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Kawa co J21

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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  • January 4, 2022 at 9:46 pm #645303
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    Sir while estimating kawa co share price if it is demerged, whey they have divided by 2000 shares? why not by 490 shares?

    January 5, 2022 at 8:42 am #645320
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    If it is emerged then the question says that the shareholders in Chakula will get one share in Kawa for every one share that they currently hold in Chakula. There are 2,000 shares in Chakura and so after the demerger the shareholders will still have 2,000 shares in Chakura but will also own 2,000 shares in Kawa.

    January 5, 2022 at 10:58 pm #645367
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    Sir, in this same Qs, While calculating equity value of Kawa co if demerged, why they are not deducting MV of debt of 400? They have deducted 25%. But instead why not 400?

    January 6, 2022 at 7:28 am #645390
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The question says that Kawa will maintain its capital structure.

    Currently the equity has a value of 2,000 shares x $2.45 x 24.5% = $1,200, and the debit is $400.
    Therefore the equity is 75% of the total market value, and this % will be maintained (so they will raise more debt or repay debt as needed).

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