Dean plc is considering a takeover of Grange plc. Both companies are entirely equity financed. Information about Dean and Grange is shown below. Both companies have just paid a dividend and the next dividend payments are expected one year from now. Dividends per share (most recent) Number of shares Share price Dean Grange 0.750 0.380 10 million 3 million 23 10 The dividends per share of Grange have been growing at a rate of 4% per year for the past few years. Following the takeover, it is believed that Grange's dividend per share will grow at a rate of 5.5% per year. (a) Use the Dividend Growth model to estimate Grange's cost of equity (the required rate of return of Grange's shareholders). (b) Assume that Grange's cost of equity does not change as a result of the takeover. What is the value of Grange's share after acquisition? What is the synergy gain of the acquisition? (c) What is the premium paid by Dean if it pays 12.50 in cash for each Grange share? What is the gain for Dean's shareholders? What proportion of the synergy gain does this represent? (d) What is the premium paid by Dean if it offers four of its own shares for every nine shares of Grange? What is the gain for Dean's shareholders? Should Dean acquire Grange using cash or a share offer? (e) Discuss the advantages and disadvantages of each acquisition method to both Dean and Grange