BLue ltd
Total Earnings	$10 mil	These are for sky ltd $6
Number of shares outstanding	2 mil	1.5 mil
EPS	$5	$4
P/E Ratio	20X	25X
Market Price per share	$100	$100

Blue Ltd is planning to merge with Sky Ltd. Under the merger one share in Blue Ltd will be exchanged for every 1.5 shares in Sky Ltd. The new firm will be called Blue Sky Ltd. As a result of the merger a reduction in costs in the amount of $75,000 is projected along with synergistic benefits of $1 mil 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 28X.

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. (14 marks)