Hi Mike,
Pact acquired 80% of the equity shares of Sact on 1 July 2014, paying $3.00 for each share acquired. This represented a premium of 20% over the market price of Sact's shares at that date.
What would be the market price of Sact's shares at acquisition?
Answer : 3.00-(3.00*20/120)=$2.5
Why do we do 20/120???
Is it not 3.00-(3*20/100)=$2.4?
Its a small calculation but I always get confused which is the right one
ACCA Forums
FRShare price calculation
3.00 is 120%. What you want to know is what was the price before the 20% i.e what is 100%
Alternatively you can say (100/120 ) x3=$2.50
if you say 20/100 the answer ..you assume that the price before the premium , the 100% is 3. Which is not the case.
Sign into reply to this topic.