Dear John,
When provided with the following details, which is the correct method of calculating post aquisition company value? :
Details
-Most recent profit after tax for aquirer and aquirer on their own, pre aquisition
-P/E ratio after aquisition
-Synergy p.a. created from aquisition
I am uncertain if I should use bootstrapping or add synergy onto individual company values pre aquisition
My uncertainty arises because the P/E ratio of joint company post aquisition is LESS than the P/E ratio of the acquiree company on its own. Does it have a bearing on which method I should use the fact that it is less?
Kind regards
Ask the Tutor ACCA AFM
Calculating value of company
You should apply the PE of the joint company to the total earnings of the two companies together with the synergy benefits.
Thanks John. Much appreciated.
You are welcome :-)
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