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CIMAPRA19-F03-1 Exam - Topic 3 Question 52 Discussion

Listed company R is in the process of making a cash offer for the equity of unlisted company S.Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.Company S has a market capitalisation of $50 million and earnings of $7 million.Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.Which of the following figures need to be used when calculating thevalue of the combined entity in $ millions?
A) 8, 20, 50, 60, 200
B) 8, 20, 50, 200
C) 20, 50, 60, 200
D) 7, 10, 20, 50, 200 Explanaiton: Calculation_F0 Calc_Set1

CIMAPRA19-F03-1 Exam - Topic 3 Question 52 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 52
Topic #: 3
[All CIMAPRA19-F03-1 Questions]

Listed company R is in the process of making a cash offer for the equity of unlisted company S.

Company R has a market capitalisation of $200 million and a price/earnings ratio of 10.

Company S has a market capitalisation of $50 million and earnings of $7 million.

Company R intends to offer $60 million and expects to be able to realise synergistic benefits of $20 million by combining the two businesses. This estimate excludes the estimated $8 million cost of integrating the two businesses.

Which of the following figures need to be used when calculating thevalue of the combined entity in $ millions?

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Suggested Answer: A

by Ceola at Jun 15, 2022, 09:15 AM

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Lawana
10 months ago
Definitely need to consider the $50 million for Company S too.
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Dottie
10 months ago
Don't forget the $8 million integration cost!
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Georgiana
10 months ago
Wait, are they really expecting $20 million in synergies? Sounds optimistic.
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Valentin
11 months ago
I think the $60 million offer is a solid move!
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Wynell
11 months ago
Company R's market cap is $200 million, right?
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Luis
11 months ago
I believe the earnings of company S are relevant, but I'm not certain if the price/earnings ratio plays a role here. It seems like we need to focus on the cash offer and synergies.
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Olive
11 months ago
This question reminds me of a practice problem where we had to assess the value of a merger. I feel like we need to focus on the market caps and the offer amount.
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Jina
11 months ago
I think we should definitely consider the $20 million in synergies, but I'm a bit confused about whether the $8 million integration cost should be included in the final calculation.
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Jennie
11 months ago
I remember we discussed how to calculate the value of combined entities, but I'm not sure if we should include the integration costs in this case.
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Vannessa
11 months ago
This question seems straightforward. I think the key is to use the Financial Services Cloud (FSC) features to get a consolidated view of the client's financial data.
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Natalie
11 months ago
I'm feeling pretty confident about this one. I just need to double-check that the selected option covers all the requirements.
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