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.

AMinimum value = $25.0 million, and maximum value = $35.0 million

BMinimum value = $25.0 million, and maximum value = $50.0 million

CMinimum value = $20.0 million, and maximum value = $35.0 million

DMinimum value = $20.0 million, and maximum value = $50.0 million

Show Suggested Answer

Suggested Answer: A

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

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Vicky

7 months ago

Free cash flows suggest a higher valuation, so I lean towards option B.

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Lynelle

7 months ago

Definitely agree with $25 million as the minimum, but $50 million feels too high.

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Arleen

7 months ago

Wait, how can the minimum be $25 million? That seems off.

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Elsa

8 months ago

I think the max could go higher than $35 million, maybe $50 million!

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Honey

8 months ago

Minimum value should be $20 million based on net book value.

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Marvel

8 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.

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Ronald

8 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.

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Malcom

8 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.

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