Assume you were advising a client - trading at 15x P/E with a EPS of $2. The client company has 2 million outstanding shares. If a potential acquirer wants to pay a 20% premium to the stock price, wha



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could explain the calculation please!

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Couple of basic formulas will help you here -
P/E = 15
EPS = $2
So P = 15x2 = $30 per share
Outstanding Shares = 2 million
So market value of company is 2 million shares x $30 per share = $60 million
If the acquirer is paying a 20% premium, then the purchase price os $60 million x (1+20%) = $72 million

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