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In pursuit co. synergy benefit achieved is $9069000. After paying Fodder’s debt and equity shareholders there is only $45600 .
How the value $45600 is achieved??Sorry, but you must tell me which exam the question is in. I cannot remember the name of every question from every exam 🙂
There is indeed a synergy benefit of 9,069,000.
However in order to acquire Fodder (and therefore be able to achieve that synergy benefit) they are having to pay more for Fodder than the value of the shares – the premium is 36,093,600.So the net benefit is only the difference, which is 45,600.
good afternoon.
in Pursuit co answer scheme, t
the synergy benefits = 189,169,000 – (140,000,000+ 40,095,000) = 9,074,000may i know where did 140,000,000 came from?
It is the current market value of Pursuit (the second sentence in the paragraph in the question on information about Pursuit).
Hi John, Pursuit is June 2011 question. When calculating fodder’s discount rate, cost of equity is used but for the discount rate of combined company, wacc is used. I don’t understand this.
Hi John, In c iii, why have they calculated (4009+ 36086 *1.25)??? And how is $4532000 calculated?
They have not used Fodder’s cost of equity to discount Fodder – they have used Fodder’s WACC as normal.
For the combined company the WACC is different, and so they discount at that WACC.
The value of Fodder is 40,095. From the question, debt is 10% which is 4,095 and equity is 90% which is 36,086. The equity is paid a premium of 25%, so the total is 4,095 + (36,086 x 1.25).
The answer to part (iii) explains how the 4532000 is calculated!!! (49116500 – 24584599 – 20000000)
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