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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.
Suggested Answer: A
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7 comments · newest first
NO
Norah
12 months ago
I'm leaning towards $3,150 million as a fair offer.
YA
Yan
1 year ago
I calculated it to be around $2,700 million.
YV
Yvonne
1 year ago
Wait, how can they guarantee improved performance?
JE
Jesusa
1 year ago
I think they can definitely boost Company F's earnings!
KA
Katie
1 year ago
Company E should consider the tax implications in their valuation.
LA
Lavera
1 year 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.
CH
Chana
1 year ago
This question seems straightforward, but I want to make sure I understand the key terms like "control environment" and "control points" before answering.