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CIMAPRA19-F03-1 Exam - Topic 4 Question 38 Discussion

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?
A) A WACC that reflects the gearing of the publishing company and theassetbetaof a listed company that provides training activities.
B) A cost of equity that reflects the asset beta of alistedcompany that provides training activities.
C) A WACC that reflects the gearing of the subsidiary company and theassetbetaof a listed company that provides training activities.
D) A WACC that the reflects the gearing of the publishing company and the equity beta factor of the publishing company.

CIMAPRA19-F03-1 Exam - Topic 4 Question 38 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 38
Topic #: 4
[All CIMAPRA19-F03-1 Questions]

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?

Show Suggested Answer Hide Answer
Suggested Answer: A

by Kallie at May 05, 2022, 01:31 AM

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Paulene
9 months ago
I can't believe they would consider anything other than the subsidiary's WACC!
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Devon
9 months ago
Definitely not option D, that doesn't reflect the subsidiary's risk.
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Slyvia
9 months ago
Wait, isn't using the publishing company's beta risky?
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Rashida
9 months ago
I think option A is the best choice here!
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Kasandra
9 months ago
A WACC based on the subsidiary's gearing makes sense.
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Angella
10 months 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.
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Flo
10 months 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.
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Pamella
10 months 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.
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Elmer
10 months 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.
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