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The solution to example 2 of chapter 16 (Nairobi Plc acquiring Delhi Plc) looks incorrect to me when it comes to the cashflows for each year. The synergist benefits should be 10% p.a. In year 1, I would expect the total to be (20+8)*110% = 30.8 whereas your solutions shows 35. Each years cashflow in the solution is 7 greater than the original cashflows. Where are the cashflows coming from (per solution year 1 -35, year 2-42, year 3-47, year 4-52, year 5-207)?
The example does not say that the benefits are 10% – it is just an extra $10 per year.
However because there would be additional tax payable at 30%, this means an increase in the total cash flow of 7 p.a..(I accept it may be a little ambiguous – in the exam it would be worded more clearly 🙂 )
Hi John Moffat,
Can you please show the calculation of how to get the answer (e.g 35 in year 1)? I am still confused.
Thank you
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