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

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?
C) Discounted forecast free cashflow
A) Dividend growth model
B) Asset basis
D) P/E ratio applied to forecast earnings next year

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

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 22
Topic #: 7
[All CIMAPRA19-F03-1 Questions]

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?

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Suggested Answer: C

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

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Gayla
10 months ago
Sounds risky to rely on future cash flows when they’re negative now.
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Sabra
10 months ago
Wait, why would they invest more in a loss-making division?
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Launa
11 months ago
P/E ratio? Not sure that’s the best choice.
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Hassie
11 months ago
I think the asset basis could work too.
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Noe
11 months ago
Discounted forecast free cashflow is key here.
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Marla
11 months ago
Hmm, this looks like a classic DOS executable format. I'll go with option A.
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Reta
11 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
11 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.
upvoted 0 times
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