13. The following information relates to two companies Alpha plc Beta plc Profit after tax £200,000 £800,000 P/E ratio 16 21 The management of Beta estimate that if they acquire Alpha they could save an after tax cost of £100,000 annually. Additionally, they estimate that the P/E ratio of the new company would be 20. On the basis of these estimates, what is the maximum price that Beta plc should offer for Alpha? A £6.3m B £5.2m C £4.2m D £2.0m
13. The following information relates to two companies Alpha plc Beta plc Profit after tax £200,000 £800,000 P/E ratio 16 21 The management of Beta estimate that if they acquire Alpha they could save an after tax cost of £100,000 annually. Additionally, they estimate that the P/E ratio of the new company would be 20. On the basis of these estimates, what is the maximum price that Beta plc should offer for Alpha? A £6.3m B £5.2m C £4.2m D £2.0m
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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13. The following information relates to two companies
|
|
Alpha plc |
Beta plc |
|
Profit after tax |
£200,000 |
£800,000 |
|
P/E ratio |
16 |
21 |
The management of Beta estimate that if they acquire Alpha they could save an after tax cost of £100,000 annually. Additionally, they estimate that the P/E ratio of the new company would be 20.
On the basis of these estimates, what is the maximum price that Beta plc should offer for Alpha?
| A |
£6.3m |
|
| B |
£5.2m |
|
| C |
£4.2m |
|
| D |
£2.0m |
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