CIMA Exam CIMAPRA19-F03-1 Topic 1 Question 106 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 106
Topic #: 1

[All CIMAPRA19-F03-1 Questions]

Company A plans to acquire Company B in a 1-for-1 share exchange.

Pre-acquisition information is as follows:

Post-acquisition information is as follows:

Annual earnings are expectedto increaseby $4 million.

The P/E multiple of the combined company is expected to be 12 times.

If the acquisition proceeds, whatis theexpected percentage increase inthe post acquisitionshare priceof Company A?

A50%

B8%

C6%

D0%

Show Suggested Answer

Suggested Answer: A, B, D

by Essie at Feb 06, 2025, 10:13 PM

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Miesha

3 months ago

Hmm, let's think this through step-by-step. If the annual earnings increase by $4 million and the P/E multiple is 12, then the expected increase in share price should be around 8%. Basic math, folks!

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Penney

3 months ago

Wait, wait, wait... Company A is acquiring Company B in a 1-for-1 share exchange? So, does that mean they're just swapping the same number of shares? Sounds like a whole lot of paperwork for nothing!

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Johana

2 months ago

So, the post-acquisition share price of Company A is expected to increase by 6%.

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Melinda

2 months ago

True, the expected increase in annual earnings is $4 million.

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Kaycee

2 months ago

Yeah, but maybe Company A sees potential in Company B's future earnings.

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Lorenza

2 months ago

It does seem like a lot of work for a 1-for-1 share exchange.

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Alita

3 months ago

D) 0% is clearly the correct answer. The acquisition is just a 1-for-1 share exchange, so there's no reason for the share price to change at all. These questions are getting trickier every year!

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Carman

3 months ago

I'll go with C) 6%. It's a nice, safe, and slightly lower estimate than the calculated 8% increase. Gotta keep those examiners on their toes!

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Nida

3 months ago

I'm not sure about this one. The information provided seems to be incomplete. How can we determine the exact percentage increase without knowing the current share price of Company A?

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Tamera

2 months ago

Zachary: Let's try to work out the calculation using the information provided and see if we can determine the expected percentage increase.

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Zachary

2 months ago

User 2: That's a good point. We can use those figures to estimate the expected percentage increase in the post acquisition share price.

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Marylin

2 months ago

User 1: Maybe we can calculate the percentage increase based on the increase in annual earnings and the P/E multiple.

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Marvel

4 months ago

The answer must be B) 8%. The post-acquisition share price is expected to increase due to the $4 million increase in annual earnings and the P/E multiple of 12 times.

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Yolando

3 months ago

Definitely, the acquisition seems to be a positive move for both companies.

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Bettina

3 months ago

Yes, you're right. The post-acquisition share price is expected to increase by 8%.

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Detra

3 months ago

I think the answer is B) 8%.

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Elvera

3 months ago

That's good news for Company A shareholders.

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Colton

3 months ago

Yes, you are correct. The post-acquisition share price is expected to increase by 8%.

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Azalee

4 months ago

I think the answer is B) 8%.

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Franklyn

4 months ago

But if the annual earnings are expected to increase by $4 million, then the post acquisition share price should increase significantly, making A) 50% more likely

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Sherly

4 months ago

I disagree, I believe the answer is C) 6%

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Franklyn

5 months ago

I think the answer is A) 50%

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