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QUESTION 1 ( 2 5 Marks ) Mike Limited, a software development company is contemplating the acquisition of Ross Limited by means of a share
QUESTION Marks Mike Limited, a software development company is contemplating the acquisition of Ross Limited by means of a share issue. The combination of the two firms' operations will result in economies of scale and the additional value generated is estimated to be R million. It was agreed that the purchase consideration for the acquisition should be based on an exchange of shares of Ross Limited for each share of Mike Limited. The key acquisition data provided for this acquisition is as follows: Mike Limited possesses million shares with a market price of R per share and eamings after tax of R million, whereas Ross Limited has million shares with a market price of R per share and eamings after tax of R million. Required: Calculate the combined value of the proposed acquisition. marks Calculate the total number of shares in the proposed acquisition. marks Determine the proposed postacquisition market price per share. decimal places marks Will the shareholders of Mike Limited be happy with this price? Why? marks How much will the shareholders of Ross Limited gain or lose on a per share basis. marks Determine the purchase price of Ross Limited that is implied by the exchange ratio. marks Calculate the net present value of the proposed acquisition. marks Calculate the proposed acquisition premium. marks Compute the earnings per share for Mike Limited before and after the proposed acquisition. Assume that the eamings after tax after the proposed acquisition is R milion.
QUESTION Marks Mike Limited, a software
development company is contemplating the acquisition of Ross Limited by means of a share issue. The combination of the two firms' operations will result in economies of scale and the additional value generated is estimated to
be R million. It was agreed that the purchase consideration for the acquisition should be based on an
exchange of shares of Ross Limited for each share of
Mike Limited. The key acquisition data provided for this
acquisition is as follows: Mike Limited possesses
million shares with a market price of R per share and
eamings after tax of R million, whereas Ross Limited has
million shares with a market price of R per share
and eamings after tax of R million. Required:
Calculate the combined value of the proposed acquisition.
marks Calculate the total number of shares in the
proposed acquisition. marks Determine the proposed postacquisition market price per share.
decimal places marks Will the shareholders of Mike
Limited be happy with this price? Why? marks How
much will the shareholders of Ross Limited gain or lose on
a per share basis. marks Determine the purchase
price of Ross Limited that is implied by the exchange
ratio. marks Calculate the net present value of the
proposed acquisition. marks Calculate the
proposed acquisition premium. marks Compute the earnings per share for Mike Limited before and after the proposed acquisition. Assume that the eamings after
tax after the proposed acquisition is R milion.
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