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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?
Suggested Answer: A
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11 comments · newest first
LA
Lawana
12 months ago
Definitely need to consider the $50 million for Company S too.
DO
Dottie
12 months ago
Don't forget the $8 million integration cost!
GE
Georgiana
1 year ago
Wait, are they really expecting $20 million in synergies? Sounds optimistic.
VA
Valentin
1 year ago
I think the $60 million offer is a solid move!
WY
Wynell
1 year ago
Company R's market cap is $200 million, right?
LU
Luis
1 year 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.
OL
Olive
1 year 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.
JI
Jina
1 year 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.
JE
Jennie
1 year 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.
VA
Vannessa
1 year 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.
NA
Natalie
1 year ago
I'm feeling pretty confident about this one. I just need to double-check that the selected option covers all the requirements.