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Newimber Co (b)(ii) – The valuation of Poynins Co using free cash flows

This topic has 1 reply, 2 voices, and was last updated 11 months ago by John Moffat.

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April 13, 2022 at 10:09 am #653228
sarah762
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ANSWERS GIVEN (an extract of it):
“If the managers’ estimates of the sportswear division’s future free cash flows are realistic, then the valuation using free cash flows ($331·4m) exceeds the current valuation ($585m – $351m = $234m).”
Why did they minus to get the current valuation of $234m?
Why the current valuation is not $351m?
April 13, 2022 at 2:38 pm #653246
John Moffat
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585 is the value of the company before demerging the sportswear division, and the question says that after demerging the value will be 351. So the value of the sportswear division must be the difference.
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