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In this question, why the answer add 620k in the additional earning post-acquisition, due to when a company be acquired, the predator just buy the futures prospect of the company, but 620k seem to be a historical data,pls help to clarify?
Much thanksThe 620K is historical, but it (and the synergy benefits) are used to forecast what the earnings will be in the future if Mije takes them over.
thanks for clarification, however i’m still confused,how we know when we add the historical data like this in the business valuation calculation due to we often ignore the past data when value the acquiree, pls. clarify
But how else are you going to estimate what will happen in the future without seeing what happened in the past?
yes, sure we just use the historical data as a determinant to forecast the future only, anyway this question quite not clear, appreciate your clarification, John
John,
Could you pls. advise another issues of the project real option relevant to this question
For a call option: if no BSOP the NPV of the follow-on product is 405k, if applying BSOP the value shall be 609k
why the answer did not add up two figure together to contribute the company but just 609k, and what the 405k represent
ThanksI am away from home tonight and so am unable to check the question. I am back tomorrow so please ask me again tomorrow and I will then answer 🙂
(And please start a new thread when asking a question on a different topic 🙂 )
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Hi John
I do not understand how the gain in value (17.9%) to a Nente Co share was calculated under Share-for-share offer.Why was it calculated as per 3 shares and not per 1 share?It is because it is 2 shares for every 3 shares, which is what the answer has done.
Hi John i had questions on this –
to calculate to FCF = the tax = 1,230 x 20%
why we can’t just use 455 as stated in the question PL?Thanks.
And, for cash offer to Mije
my logic is different from the answer, may I know whats wrong with my thinking ?
Earnings after acquisition = 620k + 150k + 3,200k = 3,970,000
Value after acquisition = 3,970,000 x 15 = 59,550,000
Paid to Nente = (7,080,000)
Difference = 52,470,000Gain = (52,470 – 48,000) / 48,000 = 9.3%
The tax in the question is not 455 – it is 155.
However part (a) asks you to use FCF and with FCF we take the cash flows available to the business as a whole, which is ignoring interest. This is then discounted at the WACC (which is how we account for the interest).
Sorry John , I did not really understand yet..
1) why we can’t use tax 155 but 1,230 x 20% in FCF calculation ?
2) and if you have a chance to look at my second question,
For cash offer to Mije, my logic is different from the answer, may I know whats wrong with my thinking ?Earnings after acquisition = 620k + 150k + 3,200k = 3,970,000
Value after acquisition = 3,970,000 x 15 = 59,550,000
Paid to Nente = (7,080,000)
Difference = 52,470,000Gain = (52,470 – 48,000) / 48,000 = 9.3%
Thanks.
1. Because the 155 is calculated after payment of interest. In free cash flows we do not include interest (or the tax saving that results from interest).
2. What you have done is fine. The difference of 0.1% from the examiners answer is simply due to rounding (in his answer 🙂 )
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