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Pursuit co J11 Q1 and westerplay co (J20)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Pursuit co J11 Q1 and westerplay co (J20)

  • This topic has 3 replies, 2 voices, and was last updated 8 months ago by John Moffat.
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  • October 25, 2021 at 7:35 pm #639097
    humai
    • Topics: 710
    • Replies: 233
    • ☆☆☆☆

    Sir 1 thing which is confusing me a lot in these 2 questions is that

    In Westparley co, Qs asked that estimate the value which Westparley Co’s shareholders will gain from the acquisition of Matravers Co

    So what examiner did that

    Combined Co value including PV of synergy = 15872 + 1842
    Add: Sell off proceeds = 5058
    Less: pre acq value of Matravers co= 12500 + 6500
    Less : premium payable to Matravers co shareholders = (12500 x 15%)

    So 1897 is the answer.

    However, in Pursuit co net benefit to pursuit co shareholders is calculated as follows

    Combined Co value = 189169000
    Less : Pre acq value of pursuit co (140000000)
    Less : Pre acr value of fodder co (40095000)
    less: premium payable to fodder co shareholders = (36086000 x 25%)

    So 52500 is the answer.

    Now my Qs and confusion is that in westerpay Qs he has not deducted pre acq value of acquirer co (westerplay co). On the other hand , in pursuit co he has deduced pre acq
    value of acquirer co (pursuit co). Why there is difference in the treatment while calculating benefit to acquirer co shareholders in the above 2 questions?
    Has examiner done wrong somewhere?

    October 26, 2021 at 10:02 am #639127
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    In the case of Westparley, the 15,782 is not the value of the combined company but it just the value of Matravers. That (together the proceeds from sell off the the value of synergies) goes partly to Matravers investors with the rest going to Westparleys shareholders.

    In the case of Pursuit, the answer takes to the total value of the combined company and therefore subtracts the pre-acquisition total values to arrive at the gain.

    October 26, 2021 at 8:44 pm #639161
    humai
    • Topics: 710
    • Replies: 233
    • ☆☆☆☆

    Sir what is the hint in these types of Qs that whether we have to take combined co value or just 1 entity value after acquisition? Also, how we come to know that in Westerplay 15782 is the value only of Matravers?

    October 27, 2021 at 8:08 am #639182
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    In Pursuit the question specifically asks for the calculation of the value of the combined company, and the question gives information as to the future cash flows of the combined company and the information needed to be able to calculate the WACC of the combined company.

    In Matravers this is not the case and the 15782 is the PV of the cash flows only of Maltravers.

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