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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Valuation
following is the ONLY given info. this is a worked example and it is trying to explain what happens when a company buys another company which has a lower PE.
i understand what it is saying.
however, on my own, I tried to calculate what the market value would be after the acquisition. and my conclusion is that given the info, the market value after the acquisition can not be calculated. please let me know if i am correct:
———————————————–Redwood———–Hawthorn
Number of shares———————-3000000—————100000
market price per sahre—————–2————————-N/A
Earnings———————————–600000—————–120000
P/E ——————————————10———————–N/A
Redwood has decided to acquire Hawthorn on share exchange basis with a P/E ratio for Hawthorn’s shares is 15.
But this example is not buying a company with a lower PE – the PE to apply to Hawthorn is 15, whereas the PE of Redwood is 10.
You cannot calculate the MV after the acquisition – there is not enough information – and I cannot believe that the example asked for it.