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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:———————————————–Red———————-Hawt
Number of shares———————-3000000—————100000
market price per sahre—————–2————————-N/A
Earnings———————————–600000—————–120000
P/E ——————————————10———————–N/ARed has decided to acquire Hawthorn on share exchange basis with a P/E ratio for Hawthorn’s shares is 15.
I really cannot keep giving answers to examples that you have presumably found in the Study Text (when I assume that there are answers in there anyway – obviously here since it is a worked example). Why do you not ask which bit of their answer you do not understand?
You would be better employed watching our free lectures and practicing real past exam questions from your Revision Kit.Since the earnings of H are 120,000 and the PE ratio is 15, then it would seem that the value of H is being esteemed at 15 x 120,000.
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