Essays on Acquisition of Rustic Plc by Triumph Plc Assignment

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The paper "Acquisition of Rustic Plc by Triumph Plc" is a great example of a finance and accounting assignment. The acquisition  is the purchase of shares or assets on another company so as to achieve managerial influence not necessarily on mutual agreement. This process requires the evaluation of the target enterprise so as to strike a deal (Hubbard, Nancy, 2001). There are various methods of evaluation that can be adopted as per the preference of the parties involved. In this case Triumph plc employees three of these methods as follows: Dividend valuation model without a growth rate P0  = the current price of the stock Div = the dividend paid at the end of year 1 Ke    = required return on equity investments P1    = the price at the end of period one P0  =  Div1/ (1 + ke)  + P1/ (1 + ke) Ke=. 20 Div=2 P1=3.68 The combined company value will be as follows: P0=2/1+. 20 + 3.68/1+. 20=. 20/1.20 +3.68/1.20=. 1667+3.0667=4.73 The current stock price for the combined company is £ 3.23 Dividend evaluation model with a growth rate Vs=D0 (1+g)/rs-g Where Vs is the current value of the stock D0 is dividend time 0 g is the growth rate r is the stockholders required rate of return. Do =2 R=. 20 G=. 10 In this case we will have Vs=. 2 (1+. 10)/. 20-. 10=. 22/. 10=£ 22. The share value added approach to estimation of cash flows for the first five years Po = D1/(1+i)¹  + D2/(1+i)²  + D3/(1+i)³ + (Dn + Pn)/(1+i)ⁿ Div =. 20 i=. 10 Pn=3.68 P0=. 20/1.10+. 2/1.12+. 2/1.13+. 2/1.14+ (. 2+3.68)/1.15 =3.315=$3.32 The value of the stock of the combined company would be $ 3.32. Similarly, the shareholder value-added approach could be worked out as follows: SAV=net operating profit after tax (NOPAT)-(capital x WACC) This requires the correct adjustment of the various figures from the statements of finance to be able to bring out the desired results. For instance in this case we have a combined net operating profit after tax as triumph plc £ 11,040 + Rustic plc £ 5,400=£ 16440. Wacc=Rd (1-t) D/V +ReE/V.

References

Hubbard, Nancy, (2001), Acquisition: strategy and implementation Basingstoke, Palgrave.

Limmack R.J. (1990), Takeover activity and differential returns to shareholders of bidding companies. Edinburgh: David Hume Institute,

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