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Hi sir,
Regarding past year exam for 2010 dec ques 1, under restructuring where we hv to calculate the estimated value, why do we hv to calculate cash position of 20.56? Why can’t we use 17.2 to calculate the estimated value instead??
Regarding management buy out, when calculate total funds for management buy out, we hv to include equipment needed to increase sales, I don’t understand where did 1/3 come from and is 80 the additional one off capital investment? If it’s so, isn’t it under restructuring? How can it be used under management buy out??
With regard to the cash, it is because discounting itself is taking account of the interest (net of tax) (as part of the cost of capital) and so if we discounted the after tax profit then we would effectively be accounting for interest twice. So…..we need to discount before interest (and the tax affect on it).
With regard to the new investment, under the restructuring option $80M is needed and this has been subtracted from the cash balance.
Under the MBO, it is only the parts division and the question says it will need a pro-rata capital investment. Since parts is half the size of fridges, it means that parts are 1/3 of the total and therefore it needs 1/3 of the total investment.Thank you sir for explaning 🙂 appreciate a lot!! I would like to ask when doing question 1 where we need to write report of analysis and calculation, do u suggest us to do the calculation and write the explanation at the same time or do the calculations first and writing part next??
It is hard to give firm advice – everyone is different.
I personally would tend to do the calculations first and then do the report.
BUT because of the time problem, the moment I realised I was starting to get short of time, I would make sure that at least I wrote a bit of the report – there are professional marks for the layout etc of the report and they are easy marks to get ( and it would be silly to waste them).
If you haven’t finished the calculations, then leave plenty of space and start the report on a new page (you can then always come back to your calculations if you find that there is time left later ).
Thanks for the advice !!! Time constraint is definitely a prob but will try my best 🙂
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