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Pursuit Co (June/2011)

This topic has 3 replies, 3 voices, and was last updated 7 years ago by John Moffat.

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August 30, 2017 at 8:42 pm #404480
Amer
Member
- Topics: 22
- Replies: 8
In this question why has the examiner used total firm value to calculate avg asset beta instead of the total equity value?
And Isn’t synergy= Total value of combined equity – value of combined equity pre acquisition?
So why total firm values have been used?
August 31, 2017 at 6:11 am #404511
Chidinma
Member
- Topics: 10
- Replies: 16
Hi John,
Please I don’t understand the additional debt needed to acquire Fodder.
Total value of Fodder plus debt obligations is $49,116,500.
If $20m is used to cover part of it, I thought the remainder of $29,116.5 should be sought for. Thank you
August 31, 2017 at 9:51 am #404577
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
Amer: The question specifically says:
“It can be assumed that the asset beta of the combined company is the weighted average of the individual companies’ asset betas, weighted in proportion of the individual companies’ market value.”
August 31, 2017 at 9:55 am #404583
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
Chidinma: They will need to raise 29,116.5. But if they keep the same gearing ratio they would only be able to raise 24,584.5, so raising the extra would result in the gearing changing.
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