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CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 91 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 91
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

Company HJK is planning to bid for listed company BNM

Financial data for BNM for the financial year ended 31 December 20X1:

HJK is not forecasting any growth in these figures for the foreseeable future

Profit and cost data above should be assumed to be equivalent to cash flow data when answenng this question

Which THREE of the following approaches would be most appropriate for HJK to use to value the equity of BNM?

Show Suggested Answer Hide Answer
Suggested Answer: A, B, C

by Celeste at Jul 08, 2024, 09:30 PM

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Misty
1 months ago
With all these cash flow calculations, I hope the accountants at HJK don't get 'discounted' by the competition!
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Isabelle
2 months ago
Option B and D seem a bit too simplistic, just using the share price and number of shares. I'd want a more comprehensive analysis to value the equity properly.
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Staci
6 days ago
User3: Option A also looks promising, with cash flows discounted at the cost of equity. It provides a more detailed approach to valuation.
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Terrilyn
9 days ago
User2: I think option E could be a good choice since it considers cash flows net of tax and the value of debt.
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Elmira
1 months ago
User1: I agree, options B and D do seem too simplistic. We need a more thorough analysis for valuing the equity.
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In
2 months ago
I'm not sure about Option C - discounting $14 million cash flows at the cost of equity seems too low. Unless there's a good reason for that, I wouldn't go with that approach.
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Elenor
5 days ago
User1: Thanks for the input, User2 and User3. I'll consider Option E as well for our valuation of BNM.
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Salome
10 days ago
User3: User2, I see your point. Option E does seem like a more reasonable approach for valuing the equity of BNM.
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Kate
13 days ago
User2: User1, I think Option E might be a better choice, discounting $30 million cash flows at WACC minus the value of debt.
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Roslyn
15 days ago
User1: I agree, Option C does seem low for discounting cash flows at the cost of equity.
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Maryrose
24 days ago
User 3: Maybe we should focus on options A and E instead, they seem more reasonable.
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Yong
1 months ago
User 2: Yong is right, we should consider other options for valuing the equity of BNM.
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Barbra
1 months ago
User 1: I agree, Option C does seem low for discounting cash flows at the cost of equity.
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Kenia
2 months ago
I would also consider Option A, as it uses the cost of equity to discount the $24 million cash flows. This is a common and straightforward valuation method.
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Melodie
1 months ago
Yes, using the cost of equity to discount the cash flows is a solid valuation method.
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Farrah
2 months ago
I agree, Option A seems like a reliable approach to value the equity of BNM.
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Kate
2 months ago
But option E takes into account the tax and the value of debt, which is important for accurate valuation.
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Elenore
2 months ago
Option E seems the most appropriate approach, as it considers the net cash flows after tax and discounts them at the weighted average cost of capital (WACC) minus the value of debt. This gives a more comprehensive valuation of the equity.
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Derick
22 days ago
Shawn: Yeah, considering the net cash flows after tax is crucial for an accurate valuation.
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Georgeanna
23 days ago
User 3: Option E is definitely the most comprehensive approach, taking into account tax and WACC.
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Shawn
1 months ago
User 2: I think option A could also be a good choice, cash flows of $24 million discounted at the cost of equity.
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Pearlie
1 months ago
User 1: I agree, option E seems like the best approach for valuing the equity of BNM.
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Carol
2 months ago
I disagree, I believe option A is the best choice.
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Kate
3 months ago
I think option E is the most appropriate approach.
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