ACCT 1B Lecture 23: ACCT_1B_-_Managerial_Accounting_-_23
Document Summary
1. identify a normal rate of return for similar companies as one targeted. X na of target to get normal return/earnings. 3. estimate expected future earnings of target. Normal earnings estimated earnings = excess earnings . 5. to compute estimated gw from excess earnings (estimated earnings > normal) assume time period and interest rate. 6. add estimated gw from step 5 to fv of firm"s net identifiable assets to arrive at possible offering price. In arriving at the targets expected future earnings backout items that are not expected to continue in the future. The better the information is clearly the better the estimate of gw and the offering price will be. If companies use different accounting methods may have to rebuild f/s on basis of agreed-upon methods to obtain comparable data. The whole process of valuation requires the careful exercise of professional judgment. The exchange ratio is determined by bargaining ability of individuals involved.
