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part (b)
Sir,
why is it that we are not taking into account the combined PAT plus synergy to calculate the PE of Tidded.
i guess it reflects my lack of understanding of what the question is asking. Normally, we wd look at figures that are post-acquisition.
can shed some light?
regards
It is because in part (b) we are looking at it from the point of view of Tidded, and they will not have information about the prospects for the ‘new’ enlarged company. So they will just be basing what they are being valued at on the current share price of Louieed.
(A clue to the fact that the examiner wasn’t expecting too much work for part (b) is that there were only 5 marks available for calculating the implied PE four times 🙂 )
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