Blue Ltd is planning to merge with Yellow Ltd. Under the merger one share in Blue Ltd will be exchanged for every 1.25 shares in Yellow Ltd. The new firm will be called Green Ltd. As a result of the merger a reduction in costs in the amount of $50,000 is projected along with synergistic benefits amounting to $60,000 resulting from the increased distribution network and market share. As a result of these improvements the P/E of the new firm is projected to be 19X.

Required: Calculate the expected market value of the merged firm and advise Blue Ltd. whether they should go ahead with the merger, giving the reason for your recommendation.

	Blue Ltd	Yellow Ltd
Number of shares outstanding	275,000	150,000
Total Earnings	$1,375,000	$583,333
P/E Ratio	14X	18X
Market Price per share	$70	$70
EPS	$5	$3.89