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Louieed co (mar/jun 16)

Home › Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA Advanced Financial Management (AFM) Exams › Louieed co (mar/jun 16)

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  • May 29, 2020 at 12:34 pm
    Louieed co (mar/jun 16) 2
    Anonymous
    Inactive

    In part c, for option 2 & 3 they have calculated the opportunity cost for cash surpluses. Then in option 1, why they have not calculated the interest that we will earn from cash surplus that we will have of 220+64 and will not be used anywhere?

    May 29, 2020 at 3:44 pm
    Louieed co (mar/jun 16) 3
    John Moffat
    Keymaster

    The question says that the debt funding needed will be reduced instantly by the cash balances. So there won’t be any cash to earn interest.

    May 29, 2020 at 3:49 pm
    Louieed co (mar/jun 16) 2
    Anonymous
    Inactive

    But in option 1 there is share for share exchange so why we will require the debt in this option?

    May 29, 2020 at 3:51 pm
    Louieed co (mar/jun 16) 3
    John Moffat
    Keymaster

    Sorry – I read your question too quickly and thought you were referring to options 2 and 3 馃檨

    The reason is that the profits after tax will already be including the interest.

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