- 12 Marks
AFM – May 2018 – L3 – Q3b – Valuation of acquisitions and mergers
Evaluating the favourability of a takeover and its impact on EPS and share price.
Question
Okumkom Ltd has a current price of GH¢2.20 per share and a price/earnings ratio of 15. At present, it has 10 million, GH¢1.00 ordinary shares issued. Okumkom Ltd is considering the takeover of Dasco Ltd. The current price of each of Dasco’s 4 million issued shares is 330 pesewas. Dasco’s price/earnings ratio is 10. Okumkom Ltd expects to be able to purchase the shares at their current price and will pay for them with an issue of its own shares valued at their current price.
Okumkom Ltd wishes to know how many shares to offer for each of Dasco Ltd’s shares, and the effect of the takeover on Okumkom Ltd’s reported earnings per share and share price.
Required:
Evaluate the favourability of this takeover and comment on your computations. (12 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Earnings Per Share (EPS), Price/Earnings (P/E) Ratio, Share Price, Takeover
- Level: Level 3
- Topic: Valuation of acquisitions and mergers
- Series: MAY 2018