CIMA Exam CIMAPRA19-F03-1 Topic 7 Question 72 Discussion

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

Question #: 72
Topic #: 7

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.

A3,150

B1,890

C4,500

D2,700

Show Suggested Answer

Suggested Answer: C

by Shalon at Aug 10, 2023, 02:38 PM

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Isidra

3 hours ago

The key seems to be understanding the impact of the 'bootstrap' effect on Company F's earnings. This will determine the maximum price that Company E should offer.

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Nobuko

11 days ago

I believe the answer is D) 2,700 because Company E can use their expertise to enhance Company F's earnings.

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Marguerita

12 days ago

I agree, Company E needs to consider how they can improve Company F's performance before making an offer.

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Krystina

17 days ago

I think the maximum price should be calculated based on Company F's earnings potential.

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