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Alistedpublishing company owns asubsidiary company whose business activity is training.
It wishes to dispose of the subsidiary company.
The following information is available:
The board of the publishing company believe that the value of the subsidiary company, and hence the value of the equity invested in it, can be determined by calculating the present value of the subsidiary's free cashflows.
Which of the following is the most appropriate discount rate to use when determining the enterprise value of the company?
Suggested Answer: A
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9 comments · newest first
PA
Paulene
12 months ago
I can't believe they would consider anything other than the subsidiary's WACC!
DE
Devon
1 year ago
Definitely not option D, that doesn't reflect the subsidiary's risk.
SL
Slyvia
1 year ago
Wait, isn't using the publishing company's beta risky?
RA
Rashida
1 year ago
I think option A is the best choice here!
KA
Kasandra
1 year ago
A WACC based on the subsidiary's gearing makes sense.
AN
Angella
1 year ago
Okay, I remember learning about this in class. I think the key is understanding that reinsurance premiums are not fully earned when received, so the answer has to involve unearned premiums. Let me re-read the options carefully.
FL
Flo
1 year ago
Okay, let me think this through. The question is asking where the 2% tolerance should be set, so I'll need to consider the different settings available in the system.
PA
Pamella
1 year ago
This is a good test of our knowledge on metadata extraction tools. I'll make sure to read through each option thoroughly before selecting my answer.
EL
Elmer
1 year ago
This seems pretty straightforward. I think the answer is B. General Posting Setup, since we need to set up a general ledger account for posting the cost differences.