Consider the data of companies X and Y stated in the table below. Description X 75p Earnings per share as at today Dividends per share as at today Number of shares as at today Share market price 30p 10 million 5.00 per share Y 15p 5p 3 million 75p per share Company Y's dividends are expected to grow at the rate of 5 per cent per annum forever with its current strategy and management. However, if company X acquires company Y and applies superior management and gains economies of scale from doing so, company Y's dividends annual growth rate may increase to 8 per cent with the same amount of capital base. The transaction cost of the acquisition will be 500,000. Assume that the cost of equity capital for both companies is 12 per cent per annum each. Answer the following questions: (1) Calculate the value that may be created by a merger of companies X and Y. (ii) If company X pays 1.25 for each share of company Y, what value would be created for the shareholders of each of the companies? (iii) If none of the benefits expected from the merger of companies X and Y is realised, because of problems of integration, what is the loss or gain in value to each group of shareholders (i) under the cash offer and (ii) under the share offer.