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Monday, 31 October 2016

F3 Financial Strategy Exam Sample Question

Question No 2:

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

Answer: A
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