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Chakula – Mar/Jun 2021 past paper

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Chakula – Mar/Jun 2021 past paper

  • This topic has 3 replies, 2 voices, and was last updated 10 months ago by John Moffat.
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  • August 2, 2021 at 6:16 am #630089
    siwela1
    • Topics: 24
    • Replies: 17
    • ☆

    Part c)ii) Solution
    MV of equity under cash offer $2933.7m
    MV of equity under share-for-share offer $4253.7m
    Please explain how to arrive at the above answers.

    August 2, 2021 at 12:58 pm #630130
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    The equity value of the combined company is $4,253.7m (using a PE valuation as shown in Appendix 3.

    If a cash offer then Lahla has to pay $1,329m to Kawa’s shareholders, which leaves 4253.7 – 1320 = $2933.7m as the value of Lahla’s shares.

    If instead there is a share-for-share offer then no cash is paid out (just more shares issued) and therefore the total value of the shares is the full $4,253.7m.

    August 2, 2021 at 1:16 pm #630133
    siwela1
    • Topics: 24
    • Replies: 17
    • ☆

    Is the thinking behind the $2933.7m a “free cash flow to equity” basis, rather than a double entry basis?

    August 2, 2021 at 1:41 pm #630146
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    No, not at all.

    Based on the future earnings, the equity is worth 4253.7. However having to pay out cash of 1,320 reduces the value of the company.

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