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Supplementary objective test questions

46 Which THREE of the following are strengths of the discounted cash flow
business valuation method?

A It provides a useful measure of the minimum value acceptable to the
seller.

B It provides a useful measure of the maximum value the buyer should pay.

C It is theoretically sound, being consistent with the objective of maximising
shareholder wealth.

D It incorporates the value of the company’s intangible assets, unlike the
standard net assets method.

E It avoids having to estimate future growth rates, unlike the dividend
valuation model.

47 Dog Co has made an offer for the entire share capital of Cat Co. However, the
directors of Cat Co do not feel that a takeover by Dog Co would be beneficial to
the shareholders of Cat Co in the long term. Therefore they are keen to prevent
the takeover from going through.

Which THREE of the following strategic defences could be used by Cat Co
in this situation?

A Refer the bid to the Competition authorities

B Poison pill

C Super majority

D Attack the bidder

E White Knight

48 Big Co has 20 million shares in issue, trading at $5 each. Small Co has
10 million shares in issue, trading at $2 each.

Big Co wants to acquire Small Co using a 1 for 2 share for share exchange. It
anticipates that synergies with a present value of $10 million will be generated
after the acquisition.

What is the expected share price of the combined company after the
acquisition? ________________
(enter your answer in $, to two decimal places)

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