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Tori Co’s current value = 11.25 × ($23.0 × 0.8) = $207.0m
Value created from combined company
($126.56m + 0.5 × $23.0m × 0.8 + $7m) × 10.35 = $1,477.57
Maximum premium = ($1,477.57m + $150.42m + $4.81m) – ($1,140m + $207.0m) = $285.80mplease explain from where we got 23 in the 1st line. and then what happened in value creation step
$23M if Tori’s per-tax profit as is given in the question. (It is multiplied by 0.8 because the tax is 20% and by 11.25 which is the PE ratio).
The maximum premium is the new MV of the combined company (1477.57) plus the value of Ndege (150.42) plus the sale of assets of C (4.81), less the value of the two companies before they combined (1140 and 207).
Why do we add the value of Nedge Co (department B) and proceeds from sale of assets of Department C with the combined company?
Because according to the second paragraph of the question, if they buy Tori then they will sell department C and will spin off department B.
Thank you Sir. So it is basically value adding to the combined company as for one we are receiving funds by selling the asset and from another we are making a new compnay which we will own?
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