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Hi,
It says that after debt obligations and equity shareholders have been paid, benefit to pursuit co is $52,000. But only the premium of $9,022,000 has been deducted from the synergy benefit. Not the debt of (10% of 40,095). why is that?
Thanks!
The synergy benefit is the extra value of the whole firm (after taking into account the debt). This all belongs to the shareholders, subject to the premium that has to be paid to the equity in Pursuit.
Hi,
with regard to this question and terminal value: why did in sample answer working 4, PV of cash flows in perpetuity calculated CF x g/wacc – g, and not only growth?
And than discounting, why did they use factor 4years?It is using the dividend growth formula, which (as I explain in my free lectures) gives the PV of any growing perpetuity.
The dividend growth formula (just as with the normal discount factor for a perpetuity) gives the PV ‘now’ for a perpetuity that starts in 1 years time. Here the first flow is in 5 years time, which is 4 years later than in 1 year, and therefore the result needs discounting for 4 years in order to get a PV ‘now’.
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