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Dear Mr Moffat. Hope my message finds you well.
I’m looking at question number 3. I understand till the part 1920.5 is the value ascertained of a target company. Now the predator company simply needs to issue share to acquire that value. Using common sense I am twisting the market price of predator company given the rise in pe ratio as a consequence of an acquisition but my answer slightly deviates.
I have no idea how the solution is expressed in the answer section moving on from there. Relative value ?? Never came across in study text.
Could u walk me through the answer as to what market value and the number of shares were issued to avail 1920.5. I’ve been thinking on it for 2 hours .
I mean I can’t understand the answer expressed.
Relative value is not a technical term. It means that the value of K is 2.1 times (i.e. relative to) the value of D (4041.2 / 1920.5 = 2.1).
Given that K has 750m shares, it means they will have to issue another 750m/2.1 shares so that the shares are in the same proportions as the total market values.
Hi Mr Moffat. Thank u for for replying so fast.
I spend like another 30 mins in the morning as assumed u wouldn’t have answered so fast . The answer is explained in a complex way. Following is how I simply worked it out.
The value of a predator 4041.2 divided by number of shares. Gives us 5.38 value per share .
1920.5 the value of target divided by 5.38 gives us 357 shares to issue to acquire.
Correct (and that is what I would have done – it is more logical 🙂 )