Requirement c (iii)
Estimate the amount of debt finance needed in addition to the cash reserves???
Sir can you check whether my way of estimation is correct or not because it is different from examiner's answer
MV of Fodder Co is =$40095000
Premium that Persuit have to pay = ($40095000*0.90)*0.25=$9021375
Persuit Co would have to pay total =$(40095000+9021375)=$49116375
In requirement C(i) it was stated that Persuit co's capital structure will remain same even after acquisition. So If $20m of $49116375 is paid out of the cash reserve then to pay remaining amount of money persuit need to raise finance from equity and debt at ratio of 50:50. Therefore Persuit need to raise debt finance of (($49116375-$20m)*0.50)=$14558187.5
Please give me your opinion and do care to give explanation if it is wrong.
Ask the Tutor ACCA AFM
Persuit Co Jun 11 Adapted
7y ago#1It is your last paragraph that is wrong.
They are paying Fodder $49M of which $20M is in cash, and so they need to raise an extra $29M debt.
Requirement c(iv)
To resolve the issue requirement in requirement (iv) can i suggest what i have written below
MV of Fodder Co is =$40095000
Premium that Persuit have to pay = ($40095000*0.90)*0.25=$9021375
Persuit Co would have to pay total =$(40095000+9021375)=$49116375
To resolve the issue of changes in capital structure Persuit need to raise finance from Debt and equity in 50:50 ratio after paying $20m from cash reserve of $49m. Therefore Persuit should raise debt finance of (($49116375-$20m)*0.50)=$14558187.5 and equity finance $14558187.5
7y ago#3Raising the new finance in the ratio 50:50 will not keep the overall ratio at 50:50.
The combined value of the new company is higher and the ratio needs to be 50:50 of the total value.
Sign in to reply to this topic.