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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 1(25 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 R24 million. It was agreed that the purchase consideration for the acquisition should be based on an
exchange of 1.4 shares of Ross Limited for each share of
Mike Limited. The key acquisition data provided for this
acquisition is as follows: Mike Limited possesses 18.8
million shares with a market price of R32 per share and
eamings after tax of R26 million, whereas Ross Limited has
13.2 million shares with a market price of R28 per share
and eamings after tax of R19 million. Required: 1.1
Calculate the combined value of the proposed acquisition.
(3 marks)1.2 Calculate the total number of shares in the
proposed acquisition. (2 marks)1.3 Determine the proposed post-acquisition market price per share. (2
decimal places)(2 marks)1.4 Will the shareholders of Mike
Limited be happy with this price? Why? (2 marks)1.5 How
much will the shareholders of Ross Limited gain or lose on
a per share basis. (2 marks)1.6 Determine the purchase
price of Ross Limited that is implied by the 1,4 exchange
ratio. (3 marks)1.7 Calculate the net present value of the
proposed acquisition. (4 marks)1.8 Calculate the
proposed acquisition premium. (3 marks)1.9 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 R35 milion.

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