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1. for synergy, why do we multiply with 7.5 ?…. isn’t synergy not part of cashflow ??
2. i know that when we calculate the the market value of equity or debt, we need some figures from balance sheet. (example, non current liability amount and total number of shares)
however, the reason we can’t assume the balance sheet amount isn’t market value is because those amount are based historic and do not reflect “current value” ???
1. The question says that the synergy benefits are $40M. The question tells you that the multiple for the combined company increases to 7.5!
2. The figures in the financial statements are always at nominal/par value – this is basic financial accounts, not financial management!!!
(and we stopped calling in the Balance Sheet years ago – it is called the Statement of Financial Position)There are lectures working through the whole of this question linked from ‘Revision Kit Live’ on the main AFM page.
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