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CIMAPRA19-F03-1 Exam - Topic 7 Question 45 Discussion

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?
D) $24 million
A) $80 million
B) $40 million
C) $48 million

CIMAPRA19-F03-1 Exam - Topic 7 Question 45 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 45
Topic #: 7
[All CIMAPRA19-F03-1 Questions]

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?

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Suggested Answer: D

by Denise at May 09, 2022, 07:49 AM

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Judy
9 months ago
Totally agree, $40 million is a solid estimate!
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Gail
9 months ago
Wait, how can they maintain that profit with a $10 million loan?
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Vivan
9 months ago
$48 million seems too high for an unlisted company.
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Lettie
9 months ago
I think $40 million sounds about right.
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Jennifer
9 months ago
Company P has a profit of $4 million and a $10 million loan.
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Alva
10 months 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.
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Sharee
10 months 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.
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Maryln
10 months ago
I thought it was MST, but I can't recall if that was just a guess from a practice quiz.
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Broderick
10 months 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.
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