Regarding your second question, since dilution value concerns maximum
purchase price, it seems to me that market value should be used, not book
value. Maybe if the problem only gave book value you'd have to use it, but
that's not the case here (1990, #34). For what it's worth, I think the
solution is wrong. I think the CSM solution to 1996 #44 gets it right.
> ----------
> From:
> Amy.Hoffman@reliancenational.com[SMTP:Amy.Hoffman@reliancenational.com]
> Sent: Friday, April 16, 1999 10:41 AM
> To: studygroup10@lists.casact.org
> Subject: Sturgis
>
>
>
> I have two questions on Sturgis:
>
> 1) On page 148 Stugis defines economic value to be the book value plus
> the
> present worth of expected future earnings. Later on, an alternative
> formula
> subtracts the present value of the cost of capital. If a question were to
> ask
> for Sturgis's definition of economic value, what would the correct answer
> be?
> Based on some of the Actex solutions to some of the more recent questions,
> the
> questions will say whether to exclude the cost of capital, so maybe this
> is a
> non-issue now?
>
> 2) This may also be a non-issue because the answer doesn't seem to be in
> the
> paper, but when computing the diluted value, one Actex solution multiplies
> the
> acquisition ROE/buyer's ROE by the book value and another multiplies by
> the
> market value. Anybody know why?
>
> Thanks for your help.
>
>