Additional notes:

$1.$ Should Attire acquire Bright, the operating synergies generated will equal a value

of R$7\mathrm{.}3$ million per annum $($expressed in terms of present value$)$

$2.$ Based on the general clothing sector, a market premium of $6\mathrm{.}4\%$ per year for

investors can be obtained.

$3.$ The South African Income Tax rate for companies is $27\%.$

$4.$ Assume the total EBIT is taxable.

$5.$ South African $10-$year government bonds offer a yield of $8\mathrm{.}15\%$ per annum.

$6.$ Assume today is $30$ June $2024.$

REQUIRED:

$1\mathrm{.}1.$

$1\mathrm{.}2.$

$1\mathrm{.}3.$

Calculate the current value of each Attire Ltd share using the Free Cash Flow

method.

Round to two decimals where required.

$(16$ marks$)$

Calculate the current value of each Bright Ltd share using the Free Cash Flow

method.

Round to two decimals where required.

$(31$ marks$)$

Determine the maximum price Attire Ltd should be willing to pay for each of

Bright Ltd$$s shares on both the basis of Free Cash Flow valuation and share

price.

Free Cash Flow basis

Share price basis

Assume: $3$ marks $3$ marks

$$ A Free Cash Flow valuation of Attire Ltd $($as a whole$)$ indicated a total value

of R$1\mathrm{.}7$ billion.

$$ A Free Cash Flow value of Bright Ltd $($as a whole$)$ indicated a total value of

R$349$ million.

$$ The combined value of the merged entities is R$1\mathrm{.}89$ billion.

Round to two decimals where required.

$(6$ marks$)$

$1\mathrm{.}4.$

Based on your answer in question $1\mathrm{.}3,$ determine the maximum exchange ratio

Attire Ltd should be willing to agree to for the share capital of Bright Ltd on both

the basis of the Free Cash Flow valuation as well as the trading share prices.

Apply the same assumptions as provided in question $1\mathrm{.}3.$

Free Cash Flow basis

Share price basis $2$ marks $2$ marks

Round to two decimals where required.

$1\mathrm{.}5.$

$(4$ marks$)$

Determine the minimum exchange ratio that Attire Ltd should accept on a

trading share price basis only.

Apply the same assumptions as provided in question $1\mathrm{.}3.$

Round to two decimals where required.