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in LOUIEED CO ( MAR / JUN 16 ),
in part (b), in the calculation of the ” value of Tidded Co share per original bid” then answer sheet have stated it’s
$20.32 = $12.19 x (5/3)
My questions are
1. why did they use 5/3 ? isn’t this offer get rejectedby Tidded Co’s board ? as it’s clearly stated in the question 4th paragraph2. Even if they did use 5/3, doesn’t this fraction only applies to the number of shares (not affecting share price) ????
1. The question clearly asks for the PE ratios implied by the terms of the initial and proposed offers. The initial offer was 5 shares for every 3. The fact it was rejected is not relevant – the question specifically still asks for it.
2. If you are offered 5 new shares for every 3 existing, then it means that for every 3 shares you are effectively being paid the value of the 5 new shares.
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