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CIMAPRA19-F03-1 Exam - Topic 5 Question 2 Discussion

Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.The two companies operate in the same markets and have the same business risk.Relevant data on the two companies is as follows:Both companies are wholly equity financed and both pay corporate tax at 30%.The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.Give your answer to the nearest $million.
A) 3,150
B) 1,890
C) 4,500
D) 2,700

CIMAPRA19-F03-1 Exam - Topic 5 Question 2 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 2
Topic #: 5
[All CIMAPRA19-F03-1 Questions]

Company E is a listed company. Its directors are valuing a smaller listed company, Company F, as a possible acquisition.

The two companies operate in the same markets and have the same business risk.

Relevant data on the two companies is as follows:

Both companies are wholly equity financed and both pay corporate tax at 30%.

The directors of Company E believe they can "bootstrap" Company F's earnings to improve performance.

Calculate the maximum price that Company E should offer to Company F's shareholders to acquire the company.

Give your answer to the nearest $million.

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Suggested Answer: A

by Carmela at May 09, 2022, 11:23 AM

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Norah
9 months ago
I'm leaning towards $3,150 million as a fair offer.
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Yan
9 months ago
I calculated it to be around $2,700 million.
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Yvonne
9 months ago
Wait, how can they guarantee improved performance?
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Jesusa
9 months ago
I think they can definitely boost Company F's earnings!
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Katie
9 months ago
Company E should consider the tax implications in their valuation.
upvoted 0 times
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Lavera
10 months ago
I'm a little confused on this one. Is it Continual improvement? That's about constantly looking for ways to optimize the IT services, which could include reducing incidents. But I'm not 100% sure. Guess I'll have to think it through carefully.
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Chana
10 months ago
This question seems straightforward, but I want to make sure I understand the key terms like "control environment" and "control points" before answering.
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