Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › "Nessie Inc" example question of valuation of Type 3 acquisition (BPP Text)!
- This topic has 0 replies, 1 voice, and was last updated 9 years ago by
Binh.
- AuthorPosts
- April 4, 2016 at 6:20 am #308947
Dear our friends,
I have done the example of valuation of Type 3 acquisition (“Nessie Inc”) in BPP Text book (page 327, 328 with version 2015-2016). In this question, they said that all old debt’s interest of Nessie (the acquirer) would be reduced from 7.5%s to 7%. Post-tax projected CFs of Nessie in future are provided.
The problem is: if the interest rate reduced, then IMO there was tax effect on the post tax operating CFs as follows:
+ Pre-acquire: Operation CF post tax = EBIT – Tax (pre)
+ Post-acquire: Operation CF post tax = EBIT – Tax (post) (tax(post) = tax(pre) + reduction in interest x tax rate).
+ Therefore, Pre-acquire CF = Post-acquire CF – reduction in interest x tax rate.But in the solution, they just combined the operating CFs (post-tax) of Nessie and Patsy (company to be purchased). Is it actually correct?
Rgds,
- AuthorPosts
- You must be logged in to reply to this topic.