QUESTION FOUR

Clover Limited is a dairy company which is in the process of negotiating the acquisition of Bakers Limited. The management estimates that the acquisition will result in synergistic benefits of R50 000. Clover Limited is prepared to make a cash payment of R180 000 for Bakers Limited. Clover Limited currently enjoys an earnings per share of R1.50 with a market value of R2 per share. Whereas, Bakers Limiteds earnings per share is 80 cents and the market value per share is R1.15. The total number of shares are 75 000 shares and 50 000 shares for Clover Limited and Bakers Limited respectively.

4.1 Determine the market price per share after the proposed take-over. (7 marks)

4.2 Calculate the net present value of the proposed take-over. (3 marks)

4.3 Calculate the take-over premium. (3 marks)