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CIMA Exam CIMAPRA19-F03-1 Topic 3 Question 107 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 107
Topic #: 3
[All CIMAPRA19-F03-1 Questions]

Company A operates in country A and uses currency AS. It is looking to acquire Company B which operates in country B and uses currency B$. The following information is relevant:

The assistant accountant at Company A has prepared the following valuation of company B's equity, however there are some errors in his calculations.

Value of Company B's equity = 14.16 + 16.03 + 17.67 = AS47.86 million

Company B has BS5 million of debt finance.

Which of the following THREE statements are true?

Show Suggested Answer Hide Answer
Suggested Answer: A, B, C

by Kassandra at Mar 03, 2025, 11:23 PM

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Lonna
2 months ago
This question is a real head-scratcher. It's like trying to assemble IKEA furniture without the instructions.
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Raul
18 days ago
C) The valuation is understated because forecast cash flows beyond year 3 have been ignored.
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Talia
19 days ago
B) Cash flow to all investors should be discounted at Company B's cost of equity of 10% rather than its WACC of 8%.
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Daren
1 months ago
A) The conversion into AS is incorrect as the assistant accountant should have divided by the exchange rate and not multiplied.
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Ryan
2 months ago
Forecast exchange rates showing the BS strengthening? That's like predicting the weather in the Sahara will be snowy next week.
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Kate
10 days ago
Yeah, it's important to consider all factors when valuing a company's equity.
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Ivory
18 days ago
I think option A is correct, the assistant accountant should have divided by the exchange rate.
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Erick
1 months ago
I agree, forecasting exchange rates can be quite unpredictable.
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Ramonita
2 months ago
Ignoring the cash flows beyond year 3? That's like trying to plan a road trip without considering the whole journey, just the first few miles.
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Jacquline
1 days ago
C) The valuation is understated because forecast cash flows beyond year 3 have been ignored.
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Gladys
11 days ago
B) Cash flow to all investors should be discounted at Company B's cost of equity of 10% rather than its WACC of 8%.
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Moon
25 days ago
A) The conversion into AS is incorrect as the assistant accountant should have divided by the exchange rate and not multiplied.
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Edna
2 months ago
I believe statement C is also true. Ignoring forecast cash flows beyond year 3 would definitely understate the valuation.
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Jutta
2 months ago
I agree with Jerry. Statement A is correct as the exchange rate should have been divided, not multiplied.
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Hillary
2 months ago
Discounting the cash flows at the cost of equity instead of the WACC? That's like trying to calculate the fuel efficiency of a car using the engine's horsepower instead of the overall vehicle weight.
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Geoffrey
2 months ago
It's important to consider all relevant factors when valuing a company's equity, including the appropriate discount rate.
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Earleen
2 months ago
The assistant accountant really needs to brush up on their exchange rate conversions. Multiplying by the rate instead of dividing? That's like trying to pay for a $5 coffee with a $50 bill.
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Jerry
2 months ago
I think statement A is true because the assistant accountant made a mistake in the conversion.
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