Thp co

The market capitalisation calculation for THP Co involves deducting the purchase price of CRX Co. This is because the market capitalisation is being calculated after the acquisition of CRX Co, and the purchase price of CRX Co is considered as an outflow of funds from THP Co's market capitalisation. Regarding your second question, for market capitalisation, we do not typically subtract and add each and every cash inflow and outflow.

sir what i don't understand is how to determine which cash flow to add/less in calculating market capitalization like if there is a issue cost we subtract it or when its new acquisition we subtract the purchase price but what about the other cash flows, like i asked are all cash flows added/subtracted in calculating market capitalization? is it like the current market share price is based on the future cash flows/earnings ? and that any new issue or acquisition will have new cash flows and hence we add them?

When calculating market capitalisation, it is important to consider the “relevant cash flows” Generally, incremental (extra) future cash flows related to income statement items are subtracted. ( extra fixed costs payable that are not sunk costs) Regarding issue costs, if they are mentioned in the question, they are deducted from the funds raised. It is important to note that market capitalisation is based on the current market share price, which can be influenced by future cash flows and earnings.

so sir ami i right in saying: the current share price of a company is basically the present value of future cash flow/ share? and that any sort of new cash flow (issue cost,acqusiition etc )is basically the additional cash flow and hence increase the share price?

Yes, you are correct. The current share price of a company is indeed the present value of future cash flows per share. In theory, the market value of a share is determined by discounting the expected future dividends at the required rate of return. If the current share price is higher than the present value of future dividends, the share is considered overvalued, and if it is lower, it is considered undervalued. Regarding new cash flows such as issue costs or acquisitions, they can indeed have an impact on the share price. Any additional cash flow, whether positive or negative, can affect the valuation of the company and, consequently, the share price.

also sir based on this i had one last doubt, when calculating business valuation using the discounted cash flow method,do we deduct the dividend or calculate using operating cash flows only?

When calculating business valuation using the discounted cash flow method, we typically calculate using operating cash flows only. Dividends, on the other hand, are typically considered as a distribution of profits to shareholders and are not included in the calculation of operating cash flows for valuation purposes.

Try and get a clear idea of what you want to ask on the forum. Be clear at the beginning what you trying to ask. Please avoid a question after question on the same topic.

SIR I WILL SURELY KEEP IT IN MIND. there was another question DARTIG CO DEC 2008 IN IT PART C WAS A LITTLE COMPLICATED WHAT I WANTED TO KNOW WAS THAT HAVE I CALCULATED THE MARKET CAPITALIZATION CORRECTLY OR NOT? AFTER THE PROPOSED INVESTMENT THE MARKET CAPITALIZATION WILL BE 12.5M SHARES * $2.6 I GUESS THE $5M INVESTMENT COST SHOULD NOT BE DEDUCTED IN THIS CASE AS IT IS ALREADY GIVEN THAT THE SHARE PRICE(AT YEAR END, MEANS AFTER PRPOSED INVESTMENT) IS $2.6 AND HENCE THE INVESTMENT IS ALREADY TAKEN INTO ACCOUNT

I AM REALLY SORRY FOR BEING ANNOYING LATELY BUT IT'S JUST THAT I AM TOO MUCH STRESSED OF THIS POINT LATELY. WHAT I BASICALLY WANTED TO SAY IS THAT THE BPP ANSWER STATES THAT THE CAPITAL GAIN WILL BE $2.5M (10000*2.5-12500*2.6-5000) I CALCULATED IT A BIT DIFFERENTLY AS FOLLOWS: AFTER RIGHTS ISSUE: 12500*2.4=$30M HOWEVER WE ARE GIVEN THE YEAR END SHARE PRICE $2.6(WHICH HAS ALREADY TAKEN INTO ACCOUNT OF THE EXPANSION) SO YEAR END MARKET CAPITALIZATION= 12500*2.6=32.5M NOW THE INVESTMENT COST IS $5M HENCE $30M-$5M+PRESENT VALUE OF EARNINGS FROM EXPANSION=32.5M PRESENT VALUE OF EARNINGS=7.5M AND HENCE CAPITAL GAIN WILL BE $2.5M KINDLY ANSWER WHETHER THIS IS RIGHT OR NOT WILL DO A WORLD OF GOOD TO ME ,WILL RELIEVE ME OF MY STRESS!!

The calculation you have mentioned is correct. The $5 million investment cost should not be deducted in this case as it is already given that the share price at year-end (after the proposed investment) is $2.6, indicating that the investment is already taken into account. Yes you got 2.5 m I don’t know why you asked me this question. It can be calculated this way. Have confidence in your knowledge and ability. Don’t always assume there is only one way to answer a question!