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Sir in part B of this question while calculating the excess earnings the BPP says that we use average the tangible assets but in mark scheme they used average capital employed and substracted the liabilities..arent these 2 different things and which method should be followed?
also in part c (ii) of this question…
pls let me know why is this way of calculation wrong: ?Cash offer – 1.33
Hav’s share – 9.24
less 2 strand co ‘s share (4.76 x 2) =9.52
PREMIUM= 1.05
% premium = 1.05/4.76 x 100 = 22%thanks
I don’t know what you are looking at, but the BPP answer that I have in front of me is not taking average capital employed and subtracting liabilities!
They are taking total assets (non-current plus current) and subtracting current liabilities. This is always equal to the capital employed – equity plus non-current liabilities.
With regard to part c(ii), your answer is wrong because the cash is 1.33 per share.
So for every 2 strand shares they get 2 x 1.33 = 2.66, plus 1 Hav share worth 9.24.
So for every 2 shares they get 2.66 + 9.24 = 11.90The current value of 2 shares is 2 x 4.77 = 9.54.
So the premium is (11.90 – 9.54) / 9.54 = 24.7%
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