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When all Tidded Co’s shareholders take up cash offer:
gearing = (540 + 193 + l,764)/(540 + 193 + 1,764 + (340 x $0.96 x 14)) = 35.3%
Here they have used the PE ratio, the EPS and the total number of shares to find the value of equity. i. e 4570 (340 x $0.96 x 14)
Would I be correct if I deducted the cash consideration 2048 (90*22.75 ) from the total value of equity of the combined company 6216 ( PE ratio 14* PAT (296+128+20) ) ?
No, because the PE ratio is always the MV of the shares / profit available for shareholders (not the profit after tax).
Thankyou.
In this question we do not deduct the cash payable to the shareholders of the acquiree, but in Chakula MJ 2021 , the cash consideration was deducted to arrive at the equity value.
May I know why that is the case.
I am sorry but I cannot access the question at the moment because there is a problem with the ACCA website 🙁
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