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Why are the earnings of Tori Co being multiplied by 50% for finding the value of the combined firm?
Also in the question they mention that the funds raised from disposal of department C will be used to pay off tori’s other NCL and CL, so why do we add those funds for finding the maximum premium? wont the funds be 0
Because the question says that Department A (which is being taken over) accounts for 50% of Tori’s PBDIT and pretax profit.
The funds of $4.81 is the cash generated from selling the assets of Department C less the amount paid out to pay off other non-current and current liabilities (and the cost of closure).
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