CIMAPRA19-F03-1 Exam - Topic 7 Question 22 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 22
Topic #: 7

A profitable company wishes to dispose ofa loss-makingdivision thatgenerated negative free cashflow in the last financial year.

The division requires significant new investment to return it to profitability.

Which of the following valuation approaches is likely to be the most useful to the company when negotiating the sales price?

ADividend growth model

BAsset basis

CDiscounted forecast free cashflow

DP/E ratio applied to forecast earnings next year

Show Suggested Answer

Suggested Answer: C

by Timothy at May 03, 2022, 11:45 PM

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Gayla

4 months ago

Sounds risky to rely on future cash flows when they’re negative now.

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Sabra

4 months ago

Wait, why would they invest more in a loss-making division?

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Launa

4 months ago

P/E ratio? Not sure that’s the best choice.

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Hassie

4 months ago

I think the asset basis could work too.

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Noe

5 months ago

Discounted forecast free cashflow is key here.

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Marla

5 months ago

Hmm, this looks like a classic DOS executable format. I'll go with option A.

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Reta

5 months ago

I'm pretty sure economic risk relates to long-term changes in exchange rates affecting overall competitiveness, especially since it's about a factory abroad.

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Micaela

5 months ago

The wording of the options is a bit tricky, I'll need to read them closely to make sure I don't miss any important details.

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