Consider the following details relating to the proposed takeover bid by Pinder Ltd (the bidder) of Handley Ltd (the target).

Pinder Ltd: Number of shares 50,000. Price per share (two weeks prior to the bid announcement) $20 Handley Ltd: Number of shares 10,000. Price per share (two weeks prior to the bid announcement) $25

You are engaged by Pinder Ltd to assess the bid and you analyse the potential synergies from the acquisition. You estimate that you will be able to generate cost savings of $20,000 p.a. in perpetuity from the acquisition starting one year from today. You also report that the systematic risk of the cost savings matches the average level of risk Pinder Ltds existing cash flows which also matches the level of systematic risk of Handley Ltd cash flow stream. Furthermore you believe that this average level of systematic risk in the firm will not change following the acquisition of Handley Ltd.

The current beta for Pinder Ltd equity is 1.2, the current market value of their debt is $200,000 with a before tax cost of debt capital of 8% per annum. The statutory corporate tax rate is 30% and you estimate that the proportion of franking credits not reclaimed by shareholders is 25%. The expected return on the market portfolio is 8% per annum and the risk-free rate is 2% per annum.

(a) What is present value of the stream of cost savings cash flows?

(b) How many shares in Pinder Ltd must be issued in return for each single share in Handley Ltd if the objective of Pinder Ltd is to provide a control premium of 20% above the value of Handley Ltd shares as they were trading before the bid? [express your final answer to 2 decimal places]