Exam CIMAPRA19-F03-1 Topic 1 Question 410 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 410
Topic #: 1
On 1 January:
* Company X has a value of $50 million
* Company Y has a value of $20 million
* Both companies are wholly equity financed
Company X plans to take over Company Y by means of a share exchange. Following the acquisition the post- tax cashflow of Company X for the foreseeable future is estimated to be $8 million each year. The post- acquisition cost of equity is expected to be 10%.
What is the best estimate of the value of the synergy that would arise from the acquisition?

Suggested Answer: A Vote an answer

Post-acquisition, Company X's annual post-tax cash flow = 8m in perpetuity.
Cost of equity = 10%.
Combined value after acquisition:
Vcombined=80.10=80 millionV_{\text{combined}} = \frac{8}{0.10} = 80\ \text{million}Vcombined=0.
108=80 million
Pre-acquisition total value:
VX+VY=50+20=70 millionV_X + V_Y = 50 + 20 = 70\ \text{million}VX+VY=50+20=70 million Synergy value:
Synergy=80#70=10 million\text{Synergy} = 80 - 70 = 10\ \text{million}Synergy=80#70=10 million

by Kelly at Jul 15, 2026, 02:29 PM

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