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

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 107
Topic #: 3

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?

AThe conversion into AS is incorrect as the assistant accountant should have divided by the exchange rate and not multiplied.

BCash flow to all investors should be discounted at Company B's cost of equity of 10% rather than its WACC of 8%.

CThe valuation is understated because forecast cash flows beyond year 3 have been ignored.

DThe forecast exchange rates are incorrect as they show the BS strengthening and it should be weakening.

EThe calculations show Company B's entity value, not its equity value.

Show Suggested Answer

Suggested Answer: A, B, C

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

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5 days ago

I think statement A is true because the assistant accountant made a mistake in the conversion.

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