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Mlima Co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Mlima Co

  • This topic has 3 replies, 2 voices, and was last updated 3 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • June 4, 2023 at 4:15 am #685966
    nurazman
    Participant
    • Topics: 32
    • Replies: 18
    • ☆☆

    1) For question (a)(i), the reason why we use Ziwa’s ungeared cost of equity as Mlima’s cost of capital because we assume that Mlima is ungeared. But in the first paragraph, it clearly state that the company has significant debt borrowing. So, why we assume Mlima is ungeared ?

    June 4, 2023 at 3:14 pm #685987
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    Please tell me the date of the exam which this question comes from. I have the past exams but I cannot remember the name of every question 🙂

    June 5, 2023 at 3:50 pm #686063
    nurazman
    Participant
    • Topics: 32
    • Replies: 18
    • ☆☆

    Original question is from P4 June 2013 paper

    June 5, 2023 at 5:11 pm #686076
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    Using the ungeared cost of equity is taking an adjusted present value approach, which is appropriate here because there is a significant change in the gearing.

    I do explain the approach, the reasons, and assumptions in my free lectures on APV (which is fairly common in exam questions).

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