- July 26, 2021 at 12:23 pm #629469Hameez2003Member
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1) So if the P/E was to change post acquisition, then we would use the combined company valuation technique?
“1. You would apply the new PE to the new earnings.”
I found this answer from a previous post.
Sir, I have a doubt in regards to calculation of the P/E ratio.
In most of the questions related to Mergers and Acquisition, the examiner specifically says that the “PE ratio remains constant after the acquisition”.
So then we use the P/E ratio of Predator Company to calculate the total value of the combined company.
Sir lets say if the P/E ratio changes after the acquisition, then to calculate the value of the combined entity we apply NEW P/E to the new earnings right?
But how do we calculate this NEW P/E ratio. Is it calculated as,
NEW P/E = (MPS of Predator Co + MPS of Target Co)/ New EPS based on new earnings
Is there are any other methods to calculate this NEW P/E ratio?
Thanking you in advance for your kind explanation!July 26, 2021 at 12:46 pm #629477John MoffatKeymaster
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If the PE ratio does change, then the question will tell you how it changes 🙂
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