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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
7 months ago
Totally agree, $40 million is a solid estimate!
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Gail
7 months ago
Wait, how can they maintain that profit with a $10 million loan?
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Vivan
7 months ago
$48 million seems too high for an unlisted company.
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Lettie
8 months ago
I think $40 million sounds about right.
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Jennifer
8 months ago
Company P has a profit of $4 million and a $10 million loan.
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Alva
8 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
8 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
8 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
8 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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