Question

In an effort to form a strategic alliance with ABC company, a dynamic company operating in the logistics sector, your company has bought 1 million shares of it priced at 17,10 euros each. As an internal auditor, you are looking at this transaction and wanted to see if the price paid was a fair price. For this reason you have compiled the necessary data to evaluate ABC at the time of transaction. At that time, ABC has just paid a dividend of 0.50 euros per share. The company kept a steady payout ratio of 35% of net earnings and the return on equity is 17%. Finally, the company operated with a cost of capital of 14%.
By how much money has your company overpaid, underpaid or paid the appropriate price for the strategic alliance with ABC?

Answer 1

The solution is as follows: