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Hello,
the questions of Opao and Chakula are EXACTLY the same : “estimate the percentage gain”
but the answers for cash offers gains are calculated differently:
Chakula: Equity value of combined company – cash paid
Opao: Additional value created – additional value going to target from cash offerMy question is when to do which since the questions are EXACTLY the same?
If there were to be a difference, it would be in the question just before the percentage gain:
Chakula: Estimate ADDITIONAL equity value created
Opao: Estimate VALUE of equity of combined companyBut then, following this logic , I would have done the percentage gain calculation exactly the contrary of what has been done for both:
for Chakula: additional value created – additional value going to target from cash offer
for Opao: Equity value of combined company – cash paidPlease advise…
Im lostDo appreciate that the examiners answers are only suggested answers. For most Paper AFM questions there is no one correct answer – different approaches and different assumptions are possible.
The marks are not for the final answer but are for showing understanding of the relevant techniques.
Whichever of the approaches you had used in these two questions would have got the marks.
Agree, but when the examiner report explicitly states :
“Furthermore many candidates seemed to misread the question and instead of calculating the gain to the shareholders that would arise from the business combination, they were instead calculating the share of the additional value, calculated earlier, that would accrue to each shareholder
group.”Then I feel like I would have failed this part 🙁
I think that maybe you are misinterpreting the examiners comment.
What he wanted was to know for each of the shareholders what the % increase in the value of their shares would be. It seems that instead of doing this what some students did was calculate what % of the total gain was going to each of the two groups of shareholders.
This would not have lost them all of the marks (because much of the workings involved would have been the same for both) but was not what was being asked for.
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