Kweli Ltd current net profits are Kshs.58 million, EPS is Kshs.4.38 and market price per share Kshs.30. The CFO proposed to the board of directors, to acquire Pamoja Ltd which has current net profits of Kshs. 12 million, EPS of Kshs.4 and market price per share of Kshs. 20. Kweli Ltd will finance the acquisition by exchanging shares with Pamoja Ltd shareholders. Pamoja Ltd after valuation will receive 2.4 million shares for the acquisition.

Required (Show your workings)

i. Compute the value of Pamoja Ltd after valuation and premium (%) paid by Kweli Ltd. (4 marks)

ii. What is the maximum number of shares the CFO of Kweli Ltd would offer so that he keeps EPS at the current level? (4 marks)

iii. Compute Kweli Ltd combined number of shares after acquisition of Pamoja Ltd (2 marks)

iv. Compute Kweli Ltd combined EPS after acquisition of Pamoja Ltd (2 marks)

v. Compute Kweli Ltd combined P/E after acquisition of Pamoja Ltd (2 marks)

vi. Compute Kweli Ltd economic advantage (EA) after acquisition of Pamoja Ltd (3 marks)

vii. Compute Kweli Ltd. Market Capitalization after acquisition of Pamoja Ltd (3 marks) Total: 20 marks