Which statement best describes the basis of Bezique's offer price?

Which statement best describes the basis of Bezique's offer price?

• A. It relies on current year's profit
• B. It uses a last year's profit multiple
• C. It is a multiple of the average projected operating profit for the next three years
• D. It depends on expected synergies only

Answer: (C)

The main idea here is valuing a deal using forward-looking profitability. In acquisitions, buyers often base the offer on expected future earnings rather than just past results, applying a multiple to projected operating profit (EBIT) to translate those forecasts into a price. Using the average projected operating profit for the next three years provides a balanced, forward-looking measure. It smooths out year-to-year volatility and one-off items, giving a more stable view of how the business is expected to perform. Applying a multiple to that average creates an offer price that reflects anticipated profitability over a meaningful horizon, which is how buyers typically price deals. Relying on the current year or last year’s profit is backward-looking and can be distorted by seasonality or one-off events, while basing the price only on expected synergies ignores the target’s standalone profitability and the risks of integrating the two businesses. Synergies are important, but they’re usually incorporated into a forward-looking forecast rather than the sole basis for the offer.

The main idea here is valuing a deal using forward-looking profitability. In acquisitions, buyers often base the offer on expected future earnings rather than just past results, applying a multiple to projected operating profit (EBIT) to translate those forecasts into a price.

Using the average projected operating profit for the next three years provides a balanced, forward-looking measure. It smooths out year-to-year volatility and one-off items, giving a more stable view of how the business is expected to perform. Applying a multiple to that average creates an offer price that reflects anticipated profitability over a meaningful horizon, which is how buyers typically price deals.

Relying on the current year or last year’s profit is backward-looking and can be distorted by seasonality or one-off events, while basing the price only on expected synergies ignores the target’s standalone profitability and the risks of integrating the two businesses. Synergies are important, but they’re usually incorporated into a forward-looking forecast rather than the sole basis for the offer.