• Firms A & T are both 100% equity financed. Firm A can acquire firm T for K330,000 in the form of either cash or stock. The Synergy value of the deal is k60, 000.

• The following information relates to the two companies

A T

No.of Shares 50,000 25,000

Price per share K30 k12

EPS k3 k3

Market value k1,500,00 k300,000

P/E Ratio 10X 4X

Required:

1. What is the merger premium in percentage over firm Ts stock

2. if based on market price per share, would the merger happen on cash or stock basis

3. Calculate the NPV of the Merger based on Cash or Stock basis

4. Calculate the Post Merger Earnings per share for the firm.