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Company P is a largeunlisted food-processing company.
Its currentprofitbefore interest and taxationis$4 million, which it expects to be maintainablein the future.
It has a $10 million long-termloan on which it pays interest of 10%.
Corporate tax ispaid at the rate of 20%.
The following information on P/E multiples is available:
Which of the following is the best indication of theequityvalue of Company P?
Suggested Answer: D
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9 comments · newest first
JU
Judy
12 months ago
Totally agree, $40 million is a solid estimate!
GA
Gail
1 year ago
Wait, how can they maintain that profit with a $10 million loan?
VI
Vivan
1 year ago
$48 million seems too high for an unlisted company.
LE
Lettie
1 year ago
I think $40 million sounds about right.
JE
Jennifer
1 year ago
Company P has a profit of $4 million and a $10 million loan.
AL
Alva
1 year ago
Okay, for this type of question, I'd want to consider whether the coffee mug has a useful life beyond a short period and if it meets the criteria to be recorded as an asset. Since it's promotional, I'm leaning towards True.
SH
Sharee
1 year ago
Based on the details provided, I think option D is the way to go. Creating a hold code that the CSR can add and remove as needed seems like the most flexible and straightforward solution. I feel pretty confident about this choice.
MA
Maryln
1 year ago
I thought it was MST, but I can't recall if that was just a guess from a practice quiz.
BR
Broderick
1 year ago
I'm pretty confident that the answer is B. Managed care plans typically use financial incentives like low copays to steer employees towards preferred providers, which helps control costs.