Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 17: A public company, Ambek Inc. is evaluating an acquisition of a private, though still significant firm, Betik Inc. Ambek believes it can buy

image text in transcribed
Question 17: A public company, Ambek Inc. is evaluating an acquisition of a private, though still significant firm, Betik Inc. Ambek believes it can buy the target for $15.0B. Since the target earned $3.0B in net profit last year, and since Ambek has a trailing PE ratio of 25.0x, the analyst team reports as we are buying the company for $15.0B/$3.0B = 5.0x, and since our (Ambek's) PE ratio is 25.0x, this deal will be immediately accretive and will likely lead to an increase in Ambek's stock price". What is potentially wrong with this argument? (3 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Charles Schwab Guide To Finances After Fifty

Authors: Carrie Schwab-Pomerantz, Joanne Cuthbertson

1st Edition

ISBN: 0804137366, 978-0804137362

More Books

Students also viewed these Finance questions

Question

8. Explain the relationship between communication and context.

Answered: 1 week ago

Question

d. How were you expected to contribute to family life?

Answered: 1 week ago