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A company is considering two mutually exclusive projects requiring an initial cash outlay of Sh 10,000 each and with a useful life of 5 years. The company required rate of return is 10% and the appropriate corporate tax rate is 50%. The projects will be depreciated on a straight line basis. The before depreciation and taxes cashflows expected to be generated by the projects are as follows. YEAR 2 3 5 Project A Shs 4,000 4.000 4,000 4.000 4,000 Project B Shs 6,000 3.000 2,000 5,000 5,000 Required: Calculate for each project L. The payback period The average rate of return The net present value IV. Profitability index V. The internal rate of return Which project should be accepted? Why?QUESTION ONE The following data are pertinent for companies A and B. A Present Earnings Shs 20 million Shs 4 million No of shares 10 million 1 million Price/earning ratio 18 10 If the two companies were to merge and the exchange ratio were one share of Company A for each share of Company B, what would be the initial impact on earnings per share of the two companies? what is the market value exchange ratio? Is the merger likely to take place? b If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above? If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would happen? d. What exchange ratio would you recommend? QUESTION TWO "A well planned merger can result to both companies benefiting". Discuss. h. "Synergy is the necessary mainspring of a successful merger" REQUIRED: What is synergy? FIG Discuss the above statement. QUESTION THREE X Led intends to take-over Y Led by offering two of its share for every five shares in Y Company Lid. Relevant financial data is as follows: X Ltd Y Ltd EPS Shs 2 Shs 2 Market price per share Shs 100 Shs 40 Price earnings ratio 50 20 No. of shares 100.000 250.000 Total carnings Shs 200,000 Shs 500,000 Total market value Shs 10,000,000 Shs 10,000,000 REQUIRED: a. Compute the combined EPS & MPS Has wealth been created for shareholders