QUESTION 4 Fedprop (Ltd), an investment property company is in the process of negotiating the acquisition of Redprop (Ltd). The management estimates that the acquisition will result in economies of scale and the additional benefits will amount to R24 million. The following information is available for the two companies: Market price per share Earnings per share Dividend per share Growth rate No. of shares issued Required: Fedprop R30.00 R1.50 R2.00 14% 6 million 4.1 Calculate the exchange ratio based on market values. 4.2 Calculate the exchange ratio based on earnings per share. 4.3 Calculate the post-acquisition earnings per share (EPS), based on 4.2 above. 4.4 Calculate the benefits, if any, to the companies. Redprop R15.00 R1.20 R1.00 (25 Marks) 7% 2 million END OF PAPER (2 marks) (2 marks) (6 marks) (5 marks) 4.5 Assume that Fedprop agree to a one-for-one exchange of shares, calculate the expected post-acquisition earnings per share. (4 marks) 4.6 Assuming a post-acquisition Price/Earnings Ratio (P/E) of 12, calculate the expected post- acquisition market price and compare it to next year's expected price without the acquisition. Should the acquisition take place? Justify your answer (use EPS derived from 4.3 above) (6 marks)