Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The CEO of R B Patel has made a proposal to its board to make a take-over offer of PBL Ltd. He is proposing to

The CEO of R B Patel has made a proposal to its board to make a take-over offer of PBL Ltd. He is proposing to pay $3.15 per share. The current market share of PBL Ltd is $3.03. The CEO of R B Patel Ltd justifies the price offer, indicating that R B Patel is the largest customer of PBL Ltd, buying and retailing all the drinking water. It will be a natural addition to their business. The CEO of R B Patel indicates that the water business will grow at 2% per year and hence dividends will also grow at this rate. PBL Ltd has a beta of 1.2 and 15-year government bonds yield 1.5%. The average market returns on the stock exchange where PBL Ltd trades is 3.5%. Refer to the PBL Ltd 2020 Financials provided.

Required

The board of R B Patel is not convinced with the offer price and seeks your advice. Prepare a report for the R B Patel board whether the offer price is justified. Your report should include three different approaches. Show all your calculations.

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

Corporate Financial Reporting And Analysis

Authors: David Young, Jacob Cohen

3rd Edition

1118470559, 9781118470558

More Books

Students also viewed these Accounting questions