QUESTION 1:

Globally, companies continuously explore ways to be more efficient and effective to survive the challenging global competition.

Some resort to mergers and acquisitions to survive. In the light of this, S.B. Company Ltd and Prestige Ltd are planning to merge to form Alliance Ltd.

It has been agreed that S.B. Companys shareholders will accept three shares in Prestige for every share in S.B. Company they hold.

Other details are as follows:

	Prestige Ltd	S.B. Company ltd
Number of shares	40million	10million
Annual earnings	GH10million	GH5.8million
P/E ratio	8	10

Post-merger annual earnings of the enlarged company are expected to be eight per cent higher than the sum of the earnings of each of the companies before the merger,

due to economies of scale and other benefits. The market is expected to apply a P/E ratio of 9 to SBLL Ltd.

Required:

a) Explain to the stakeholders of both companies the justification on for the following integration strategies in mergers and acquisitions.

i) Horizontal take-over. (4 marks)

ii) Vertical backward and forward take-overs. (4 marks)

iii) Conglomerate mergers. (2 marks)

c) Explain TWO (2) differences between forward contracts and futures contracts. (5 marks)

QUESTION 2:

i) Define the difference between financial investment and economic investment and give an example in each case (4 marks)

ii) Define the difference between gambling and speculation (2 marks)

iii) Explain the contributory three-tier pension scheme as defined by the Pensions Act 2008, Act 766. (9 marks)