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Sir in acquisition while calculating the additional value ,how does it work. I suppose its value of both company after acquisition + any synergy – value of each company. My question is sometime they take value of company as FCF and some time they calculate from market price of share ,how would we know which one to choose.Like in dec 14. Please clarify.
Thankslet me try to answer the question for you student. from the information that will be given to you in the question you will be able to tell which to use. for exam you cannot use FCF without knowing ke and if there is any growth. you may have to calculate Ke and g anyway but from the information that will be given in the question you will be able to tell.
the other one us using the share price. but you cannot use it if you don’t know PE. thus if you are given PE in a question and given the number of shares and the shar price you can just use it. remember there is no one way to value a company. they are many. you use the one you can based on the information given. hope it helps
thanksThank you so much for that.But that mean the value should be same.But might b i m confusing is FCFE and current value not the same thing please look at question 1 Nahara
Current value is 12000 and FCFE is 1666.7.
Please clarify.
Thanks.Discounting free cash flow at the WACC gives the total value of the business.
Discounting the free cash flow to equity at the cost of equity gives the total value of the equity.There are lectures uploaded here going through Q1 of the December 2014 exam.
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