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Impact on Predator Company’s Equity after Acquisition – Louieed Co (Mar/Jun 16)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Impact on Predator Company’s Equity after Acquisition – Louieed Co (Mar/Jun 16)

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • February 28, 2022 at 2:04 am #649484
    Anonymous
    Inactive
    • Topics: 6
    • Replies: 6
    • ☆

    Hello Sir,

    While calculating Market value of Shares of Louieed Co under Cash offer, why cash paid to Tidded Co’s shareholders is not being deducted?

    It is calculated as : MV = 340m x $0.96 x 14 = $4569.6m;
    where,
    Shares = 340m
    EPS after acquisition = $0.96
    P/E ratio of Combined Company = 14

    So, my doubt is that why didn’t we deduct $1764 being paid to Tidded Co;s shareholders from this value of $4569.6m?

    Thank you!

    February 28, 2022 at 8:28 am #649500
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    The EPS of $0.96 per share is calculated from the earnings which are not affected by the cash paid.

    February 28, 2022 at 9:50 am #649503
    Anonymous
    Inactive
    • Topics: 6
    • Replies: 6
    • ☆

    Why are the earnings not affected by the cash paid?

    February 28, 2022 at 4:21 pm #649517
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    Cash paid is a capital transaction and will not affect the SOPL.

  • Author
    Posts
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