CT 2 IAI MARCH 2017

Discussion in 'CT2' started by Naman jain, Sep 13, 2017.

  1. Naman jain

    Naman jain Member

    Sir,
    i am facing a difficulty in understanding the solution of question no. 11 part (ii).
    Actually i am not able to identify what the question is asking. Can you please explain the meaning of the question and the solution given by IAI.
    I would be thankful to you if you can show me any alternative method to solve it, if it exists.

    Thanking you in advance.
     

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    Last edited by a moderator: Sep 13, 2017
    Naman jain, Sep 13, 2017
    #1
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hello

    It's an unusual looking question!

    The question is asking for two estimates of the share price. Both will use Price / Earnings ratio (of 16 given in the table) and multiply by an estimate of the earnings per share (EPS).
    The first estimate is based on the EPS in the draft accounts given in the question (1.2).
    The second estimate is based on adjusting the accounts to allow for the different amortisation of the patents. The solution appears to assume that all the other numbers that go in to calculating the earnings (eg interest, tax) are the same, and that only the amortisation figure would change.

    Hope this helps in seeing what's happening in the solution.
    Lynn
     
    Lynn Birchall, Sep 14, 2017
    #2

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