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- April 28, 2015 at 4:27 am #242993
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!
April 28, 2015 at 8:07 am #2430141. 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
April 28, 2015 at 8:17 am #243017So if I use the method I mentioned above to calculate and justify my answer. Is that correct? Thanks
April 28, 2015 at 11:28 am #243060For point 1, although I think the examiners answer is more correct, you would still get most if not all of the marks.
April 28, 2015 at 11:46 am #243068Much clear. Thanks
April 28, 2015 at 12:07 pm #243078You are welcome 🙂
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