- This topic has 3 replies, 2 voices, and was last updated 12 years ago by
.
- Posts
Fdave plans to acquire Maf in the same business sector, and will pay cash for shares of the company. The cash would be raised by Fdave through a 2 for 5 rights issue at 15% discount to its current share price.
The purchase price of the 1.6m issued shares of Maf would be equal to the rights issue funds raised, less issue costs of $425,000.
EPS of Maf at the time of acquisition would be 52.8c per share.
Fdave maintains a payout ratio of 60% per year and EPS is currently 72c per share. Dividend growth of 6% per year is expected for the foreseeable future and the company’s cost of equity is 15% per year. Number of shares in issue= 4m $1 each.a) Using P/E ratio methd, calculate the share price and market capitalisation of Maf before the acquisition,
b) Calculate the share price after the acquisitionPlease help. Thank You!
- Topics: 0
- Replies: 5
- ☆
I think this is what you do:
P/E ratio method:
Share price of Fdave
P0 = D0(1+g)/ke-g
= 0.72(1.06)/(0.15-0.06)
= 8.48
P/E = 8.48/0.72
= 11.78Multiply this PE ratio by Maf’s EPS
=11.78*0.528
Maf share price =6.22Total Maf shares 1.6m
Market cap of Maf = 9,952,000Part b
Calculate TERP:
5 shares at 6.22 (as above) = 31.1
2 shares at 6.22*(1-0.15)= 5.29 =10.58
7 shares =41.68
1 share =5.95- Topics: 0
- Replies: 5
- ☆
Do should actually be 0.72 x payout ratio of 60% = 0.432 and this should be carried down the workings
- You must be logged in to reply to this topic.