ACCA Strategic Professional · Advanced Financial Management · Financing acquisitions and mergers
Bidder Cora plc has a P/E ratio of 15 and earnings of $40m with 100m shares. Target Dune has earnings of $10m. Cora bids $180m in cash, funded by debt. Ignoring synergies, what P/E multiple is Cora paying for Dune?
Cora is paying 18 times earnings, because the $180 million price divided by Dune's $10 million earnings equals 18. Cora's own P/E of 15 is irrelevant to the multiple being paid for the target.
- A15
- B18Correct
- C4.5
- D12
Explanation
Price paid $180m divided by Dune's earnings $10m = 18 times. 15 is Cora's own P/E, a base error. Other options do not follow from the data.
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