[omega1995]

Criteria for Transfer price policy. No amount of past paper practice would have prepared me for that.

[omega1995]

I gave measures as alternatives to some existing ones.

[omega1995]

I wrote that ROCE wasn’t appropriate since it is in the service industry and that internal perspective wasn’t addressed.
I also wrote that no. Of appointments measure for customer perspective used is not appropriate since it is beyond the staffs control.
The learning perspective, I mentioned that it should not measure the qualification the staff already process instead what the org. provides

Did this in a rush
Didn’t have time to complete. Ended saying it’s unbalanced

[omega1995]

Any idea when the examiners’ report is released

[omega1995]

Hi sir ,

I think I am not understood. Apologies

What I am trying to say is that the Equity value and Firm value are two different things.
The difference in the Firm value between post and pre-acquisition is the made up of the gain/loss in MVe and MVd.

Therefore is it right to assume that “..Whatever the gain to the firm is, that gain will all belong to the equity and so will be the gain to equity.”

[omega1995]

The values used in the example above are values of the target firm.

[omega1995]

Suppose the firm has a MVe of 5m and Mvd of 3m pre-acquisition.
And after acquisition the MVe is 6m and Mvd is 4m.
Does this mean that the firm value gain is 2m but the equity value gain is only 1m

[omega1995]

I now see what happened there.

Thank you Sir.

[omega1995]

If new shares are given then the total shares of the predator company post acquisition will increase right. But that never happens in these exam questions. For example in the question I mentioned above the no. of shares are 2000 before and after acquisition.

[omega1995]

Thank you Sir.

[omega1995]

Hi sir,

I had this doubt after reading the above post.

I came across many questions in the revision kit that state that the premium is paid on the Equity market value of the target company.

Does this mean that the total consideration paid by the Acquirer is (MVe + MVd + premium) or is it (MVe + premium).
Does the Predator pay for the value of the whole firm or just the market value of equity.

[omega1995]

The the acquirer bidd 75m for the share capital. Does this mean it is ready to pay 90m (75+15) for the acquisition.

[omega1995]

Thank you Sir.

[omega1995]

This was the approach I used.
Spent more than 30 mins on this one wondering how to present the working.

[omega1995]

1) when project has same capital structure
2) project is a small scale extention of the existing company. So that WACC doesn’t get affected significantly.
3) project should have the same business risk.

[omega1995]

Asset beta of proxy company- 1.4 (gearing 1:2)
Our company is fully equity finaned
Market risk – 4%
Premium -7%
What’s the cost of equity

[omega1995]

What about the second question. About cost of equity using CAPM

[Author]

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