Mesa Petroleum's profit from the 1982 acquisition of Cities Service was how much?

Mesa Petroleum's profit from the 1982 acquisition of Cities Service was how much?

• A. $50 million
• B. $30 million
• C. $10 million
• D. $100 million

Answer: (B)

The idea being tested is how to evaluate the actual profit an acquirer records from a big takeover. Profit from an acquisition isn’t just the difference between what you paid and what you eventually sell for; it’s the net result after financing the deal, any restructuring, asset sales, distributions, and the earnings those assets generate in the measured period. In the 1982 Cities Service deal, Mesa Petroleum’s gain is reported as about 30 million dollars when you account for the purchase price, the debt used to finance the deal, and the cash flows and adjustments tied to the acquired assets during the period in question. The figure reflects the realized profit within the specified timeframe, rather than the total value created over many years. The other options would imply much larger or much smaller immediate gains than what was recorded for that transaction in the period referenced, so the 30 million figure best matches the reported outcome.

The idea being tested is how to evaluate the actual profit an acquirer records from a big takeover. Profit from an acquisition isn’t just the difference between what you paid and what you eventually sell for; it’s the net result after financing the deal, any restructuring, asset sales, distributions, and the earnings those assets generate in the measured period.

In the 1982 Cities Service deal, Mesa Petroleum’s gain is reported as about 30 million dollars when you account for the purchase price, the debt used to finance the deal, and the cash flows and adjustments tied to the acquired assets during the period in question. The figure reflects the realized profit within the specified timeframe, rather than the total value created over many years. The other options would imply much larger or much smaller immediate gains than what was recorded for that transaction in the period referenced, so the 30 million figure best matches the reported outcome.