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SIR
I have a question at JUNE 13 paper.
1. for the question 2, at the page of 18(answers), when calculate the premium gain at the ‘cash and share offer'(option ii), why the answer use 9.24? Does it assume the Hav’s price is constant? I think we should sum up the value of Hav and Strand, and synergy value(use 140*14.5), which is 29922.8. then divide by the total shares (2400+1200/2*1=3000), then this result should be the Hav’s price under this option, not the 9.24.also in this question, the part(b), getting the premium based on the excess earnings, I do not understand the last step which is 159.3/0.07. in my view, it should use the annuity factor that is [7%,3].
thanks!
1. Part (c) is asking about which option would Strand’s shareholders prefer, and the thinking that the examiner is using is that when Strand’s shareholders are considering they will be looking at the current share price of Hav (they will not be in a position to calculate what will happen to the share price in the future – although he does mention in his comments afterwards that the price is likely to rise).
2 With regard to the premium based on excess earnings, the examiner has written that it has been assumed to be in perpetuity and therefore the discount factor is 1/0.07
So if I use the method I mentioned above to calculate and justify my answer. Is that correct? Thanks
For point 1, although I think the examiners answer is more correct, you would still get most if not all of the marks.
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