- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
hi John,
1. for EPS calculation, why do we always use after tax earning ??? why can’t we use pre tax earning ?
2. in (b) i can see from the answer sheet that they have used the same EPS rate (1.42) while share price is keep changing as a result of each initial and proposed offer.
for the first option, is 5(Louieed Co)/3(Tidded Co) and the answer sheet have multiplied 5/3 with 12.19.
One thing i do not understand is that why do we multiply 12.19 with 5/3 ?.
We just assume Louieed Co will pay to Tidded Co based on the share price of Louieed Co ???3. in (b), Moreover, in the last option of b, cash alternative of 22.75/share was given and PE formula is share price over EPS. why do we use cash alternative ? as it is not a share price ….?
4. in part (c), why do we deduct 64m ? . Louieed Co is acquiring Tidded Co so this extra fund means the fund that is need by Louieed Co to acquire Tidded Co. Therefore only cash
or amount that is possed or owned by Louieed Co should be deducted not 64m of cash from Tidded Co.as a result, shouldn’t the answer only deduct 220m not 64m ?
5. lastly in part (c), why do we deduct 105.84m and 11.36m ?. They both are the additional loan and cash surpluses that can be obtained therefore shouldn’t they be added ???
They are the available sources of finance which will increase the earning isn’t ???
1. This is very basic financial accounts. EPS is calculated using earnings available for shareholders, which is always after tax!
2. Yes – that is what we assume.
3. But the PE implied is based on the value being placed on the shares (regardless of how they are being paid for).
4. If Louieed takes over Tidded then they then own the cash in both companies.
5. They are not the addition loan and cash surpluses. 105.84 is the interest on the extra borrowing, 11.36 is the interest lost on the cash and cash equivalents. Therefore the earnings available for shareholders is reduced by both of them.
- The topic ‘LOUIEED CO (MAR/JUN 16)’ is closed to new replies.