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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Impact on Predator Company’s Equity after Acquisition – Louieed Co (Mar/Jun 16)
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!
The EPS of $0.96 per share is calculated from the earnings which are not affected by the cash paid.
Why are the earnings not affected by the cash paid?
Cash paid is a capital transaction and will not affect the SOPL.