1. Volume 1, p178, No.97
it asks you to calculate acquirer’s current assets using acquisition method.
But we are only given two company’s balance sheets and no fair value information.
Shouldn’t we get the answer by adding acquirer’s BV to target’s FV of current assets?
If we use book values of both, it would be pooling-of-interest method, right?
2. Volume 1, p168, No.84
I think statement 2 is wrong since intrinsic P/E is directly linked to r and g, but not retention ratio. If we pay out a higher dividend, growth will be lower too, but it has nothing to do with a lower franchise P/E, right?
3. Volume 2, p66, No 113
I think B is correct too. if conversion ratio is reduced by half, shouldn’t market conversion price double?作者: SWASH 时间: 2013-4-5 22:50
1. The vignette didn’t mention whether it was fair value or book value. Since it’s the only value given, I’d take that as the value you need for calculation.
2. Franchise P/E = g/(r-g) * (1/r-1/ROE). If RR is higher, holding ROE constant, g will be lower. Therefore g/(r-g) will be lower and result in lower franchise P/E
Haven’t done the second book yet.作者: Finalnub 时间: 2013-4-5 22:50
Thanks zestzorb, i get your point.
One question though, the answer mentions that franchise P/E increases that way, and so does intrinsic P/E.
If that’s true, we can conclude that higher dividend payout ratio-higher P/E, but that’s not right since we can’t determined the combined effect of higher payout ratio and lower growth rate.
