EFG Holdings Corporation will be acquiring 100% ownership of HIJ Corporation. The latter currently has an equity value of P3,600,000, a Jrequired rate of return of 16%, excess earnings of 2%, and a remaining business life of 5 years. If EFG Holding Corporation acquires HIJ, this life will be extended by 15 years but its operating risk will also increase. The required rate of return on HIJ would become 20%. If the agreed price is P4,000,000, how much would the value of control over HIJ which EFG Corporation would still avoid be?
EFG Holdings Corporation will be acquiring 100% ownership of HIJ Corporation. The latter currently has an equity value of P3,600,000, a Jrequired rate of return of 16%, excess earnings of 2%, and a remaining business life of 5 years. If EFG Holding Corporation acquires HIJ, this life will be extended by 15 years but its operating risk will also increase. The required rate of return on HIJ would become 20%. If the agreed price is P4,000,000, how much would the value of control over HIJ which EFG Corporation would still avoid be?
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
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EFG Holdings Corporation will be acquiring 100% ownership of HIJ Corporation. The latter currently has an equity value of P3,600,000, a Jrequired
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