Part A). ABC, a large stock exchange listed firm, intends to take over DEF, a small,...

 

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Part A). ABC, a large stock exchange listed firm, intends to take over DEF, a small, unlisted company. The shares of ABC are currently trading at 510 pence and there are 50 million shares outstanding. DEF has 8,000 shares outstanding with a face value of £1. The financial director of ABC estimates that given DEF's smaller size and other factors, investors would require 130% of the return they require from ABC. The following table reports the total amount of dividends paid by both companies. Year t-4 t-3 t-2 t-1 t ABC Dividend (£ million) 7.15 7.88 8.63 9.46 10.45 DEF Dividend (£000) 5.41 6.29 7.28 7.30 8.48 Given this information, determine how much ABC should pay for DEF. Clearly state the assumptions you are making. (15 marks) Part A). ABC, a large stock exchange listed firm, intends to take over DEF, a small, unlisted company. The shares of ABC are currently trading at 510 pence and there are 50 million shares outstanding. DEF has 8,000 shares outstanding with a face value of £1. The financial director of ABC estimates that given DEF's smaller size and other factors, investors would require 130% of the return they require from ABC. The following table reports the total amount of dividends paid by both companies. Year t-4 t-3 t-2 t-1 t ABC Dividend (£ million) 7.15 7.88 8.63 9.46 10.45 DEF Dividend (£000) 5.41 6.29 7.28 7.30 8.48 Given this information, determine how much ABC should pay for DEF. Clearly state the assumptions you are making. (15 marks)

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