Can someone please explain the answer to this to me? I can’t calculate the number of shares for Melton and Apple for part 5 of the question, the math doesn’t seem to add up. Thanks!
this is a pretty awesome vignette. tough.
do you understand step 3, which is the fractional ownership for Melton? That’s key.
I’m gonna assume you understand step 3, the fractional ownership.
Richmond Group invests 7m for Melton, which is 26.08%
To compute the # of shares Richmond gets for Melton, this is what you do.
1) there is a formula that seems awkward at first, but if you do it a couple times, you get used to it.
2) This is the formula: (# of shares held by current owners) x (Richmond’s fractional ownership / 1 - Richmond’s fractional ownership)
3) let’s do it: 1.5m x (.2608/ 1 - .2608) = 1.5m x .3528 = 529,000 shares
CFA.Rhythm, that makes more sense, the answer key tho shows:
“Stake for Melton = 1.5 million / [26.08% / (1 ? 26.08%)] = 529,258 shares”
it must be a mistake, since the math doesn’t add up. But, Northeastern’s formula is consistent with the Qbank answer….