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sir,
In Examiner’s Report of March 2018 a question from Sec A has been taken, I am unable to understand the Example no 2 of this section.
Can you please explain the Points mentioned here?
Thanks
The value placed on Gamma will depend on what they expect to earn from Gamma in the future.
A More prudent (i.e. lower) growth estimates will mean Alpha expecting lower future earnings and therefore result in Alpha arriving at a lower valuation.
B If Beta could achieve more synergy (savings from combining the businesses) then they will expect higher future earnings, and therefore Beta would arrive at a higher valuation.
C Negotiation does not affect the valuation. You decide on how much you think the business is worth and only later do you negotiate and try to pay as little as possible.
D If Gamma is a direct competitor of Alpha, then at the moment they will be (for example) having to charge lower prices to compete. If Alpha buy Gamma then there is less competition so they could increase prices and increase future earnings.
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