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CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 91 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 91
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

Company HJK is planning to bid for listed company BNM

Financial data for BNM for the financial year ended 31 December 20X1:

HJK is not forecasting any growth in these figures for the foreseeable future

Profit and cost data above should be assumed to be equivalent to cash flow data when answenng this question

Which THREE of the following approaches would be most appropriate for HJK to use to value the equity of BNM?

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Suggested Answer: A, B, C

by Celeste at Jul 08, 2024, 09:30 PM

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Misty
25 days ago
With all these cash flow calculations, I hope the accountants at HJK don't get 'discounted' by the competition!
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Isabelle
1 months ago
Option B and D seem a bit too simplistic, just using the share price and number of shares. I'd want a more comprehensive analysis to value the equity properly.
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Elmira
16 days ago
User1: I agree, options B and D do seem too simplistic. We need a more thorough analysis for valuing the equity.
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In
1 months ago
I'm not sure about Option C - discounting $14 million cash flows at the cost of equity seems too low. Unless there's a good reason for that, I wouldn't go with that approach.
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Maryrose
7 days ago
User 3: Maybe we should focus on options A and E instead, they seem more reasonable.
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Yong
20 days ago
User 2: Yong is right, we should consider other options for valuing the equity of BNM.
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Barbra
22 days ago
User 1: I agree, Option C does seem low for discounting cash flows at the cost of equity.
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Kenia
2 months ago
I would also consider Option A, as it uses the cost of equity to discount the $24 million cash flows. This is a common and straightforward valuation method.
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Melodie
27 days ago
Yes, using the cost of equity to discount the cash flows is a solid valuation method.
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Farrah
29 days ago
I agree, Option A seems like a reliable approach to value the equity of BNM.
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Kate
2 months ago
But option E takes into account the tax and the value of debt, which is important for accurate valuation.
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Elenore
2 months ago
Option E seems the most appropriate approach, as it considers the net cash flows after tax and discounts them at the weighted average cost of capital (WACC) minus the value of debt. This gives a more comprehensive valuation of the equity.
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Derick
5 days ago
Shawn: Yeah, considering the net cash flows after tax is crucial for an accurate valuation.
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Georgeanna
6 days ago
User 3: Option E is definitely the most comprehensive approach, taking into account tax and WACC.
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Shawn
16 days ago
User 2: I think option A could also be a good choice, cash flows of $24 million discounted at the cost of equity.
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Pearlie
24 days ago
User 1: I agree, option E seems like the best approach for valuing the equity of BNM.
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Carol
2 months ago
I disagree, I believe option A is the best choice.
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Kate
2 months ago
I think option E is the most appropriate approach.
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