Reference no: EM132452874

ACCT5910 Business Analysis and Valuation Assignment - University of New South Wales, Australia

Problem 1 - In the takeover market, private equity firms have become important participants. These firms offer to acquire a target group, often with the cooperation of target management, and then take the firm private. These transactions tend to be financed with a significant portion of debt.

a) What types of firms would make ideal candidates for a private equity buyout. Give at least one example of an ASX-listed firm that would meet this criteria.

b) How might the private equity purchaser add value to justify a high takeover premium?

Problem 2 - Cascade Brewing plans to acquire Hahn Brewing for $120 per share, a 40% premium over the current market price. The Financial Director of Cascade Brewing argues that this valuation can be justified, using a price-earning analysis. "Cascade brewing has a P/E ratio of 15, and we expect that we will be able to generate long-term earnings for Hahn of $10 per share. This implies that Hahn Brewing is worth $150 to us, well above our $120 offer price"

a) Do you agree with this analysis?

b) What are the Financial Director's key assumptions?

Problem 3 - There is often concern that companies involved in mergers and acquisitions have incentives to manage their earnings.

a) Explain how earnings management might achieve a better outcome in a merger situation. Include a numeral example to support your explanation.

b) What factors could limit the extent that companies are able to manage their earnings in a takeover situation?

Problem 4 - Under current IFRS standards, acquiring firms must treat any goodwill on acquisition as a deferred cost (i.e., capitalised) and report any subsequent declines in value as impairment charges. What performance measures would you use to determine whether goodwill has been impaired?