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CIMAPRA19-F03-1 Exam - Topic 5 Question 44 Discussion

A company's Board of Directors wishes to determine a range of values for its equity.The following information is available:Estimated net assetvalues (total asset less total liabilities including borrowings):* Net book value = $20 million* Net realisable value = $25 million* Free cash flows to equity = $3.5 millioneachyearindefinitely, post-tax.* Cost of equity = 10%* Weighted Average Cost of Capital = 7%Advise the Board on reasonable minimum and maximum values for the equity.
A) Minimum value = $25.0 million, and maximum value = $35.0 million
B) Minimum value = $25.0 million, and maximum value = $50.0 million
C) Minimum value = $20.0 million, and maximum value = $35.0 million
D) Minimum value = $20.0 million, and maximum value = $50.0 million

CIMAPRA19-F03-1 Exam - Topic 5 Question 44 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 44
Topic #: 5
[All CIMAPRA19-F03-1 Questions]

A company's Board of Directors wishes to determine a range of values for its equity.

The following information is available:

Estimated net assetvalues (total asset less total liabilities including borrowings):

* Net book value = $20 million

* Net realisable value = $25 million

* Free cash flows to equity = $3.5 millioneachyearindefinitely, post-tax.

* Cost of equity = 10%

* Weighted Average Cost of Capital = 7%

Advise the Board on reasonable minimum and maximum values for the equity.

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Suggested Answer: A

by Kimbery at May 03, 2022, 08:45 PM

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Vicky
9 months ago
Free cash flows suggest a higher valuation, so I lean towards option B.
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Lynelle
9 months ago
Definitely agree with $25 million as the minimum, but $50 million feels too high.
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Arleen
9 months ago
Wait, how can the minimum be $25 million? That seems off.
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Elsa
9 months ago
I think the max could go higher than $35 million, maybe $50 million!
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Honey
9 months ago
Minimum value should be $20 million based on net book value.
upvoted 0 times
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Marvel
10 months ago
Hmm, I'm a bit unsure about the differences between SPARC and x86 architectures when it comes to bootable USB images. I'll need to review that part carefully.
upvoted 0 times
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Ronald
10 months ago
Okay, I think I've got a good strategy. I'll likely go with either creating a Menu Exclusion or an Item Exclusion for the Invoice Payments option. That should do the trick.
upvoted 0 times
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Malcom
10 months ago
I think in our practice questions, there was a scenario that showed auto scaling could be done quickly, but I can't recall the exact times.
upvoted 0 times
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