Page 414 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Subject F3: Financial Strategy

49 Information related to two companies, XX and YY, is shown below:
Number of Most recent
shares in issue annual earnings Share price
(million) ($ million) ($)
XX 10 4.18 4.60
YY 8 3.60 3.15

XX intends to acquire YY in the expectation that companies’ combined earnings
will be 10% higher than the sum of the earnings before the acquisition. Also,
XX’s management are confident that they can improve the performance of YY
to bring it up to the level of XX.

What is the expected total value of the combined companies’ equity after
the acquisition?

A $94.14 million

B $82.80 million

C $78.32 million

D $59.91 million

50 Spinning Co intends to acquire Still Co using a share for share exchange. The
plan is that the current Spinning Co shareholders will own 70% of the
company’s shares after the acquisition.

Details of the two companies:

Number of
shares in issue Share price
(million) ($)
Spinning Co 10 5.05

Still Co 6 3.56

Synergies with a present value of $10 million will be generated by the
acquisition.

What will be the total gain to the shareholders of Still Co after the
acquisition (to two decimal places)?

A $10.00 million

B $8.94 million

C $6.80 million

D $3.20 million

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