QUESTION TWO [15]

The shareholders of Bee-Bee Company have voted in favour of a buyout offer from Honey Ltd. The information pertinent to each firm is as follows:

Data Bee-Bee Honey

PE Ratio 4 12

Share in Issue 120 000 240 000

Earnings (after tax) R 360 000 R 720 000

Bee-Bee shareholders will receive one share in Honey for every share they hold.

2.1.1 What will the EPS of Honey be after the merger? (4)

2.1.2 Calculate Honeys share price and PE ratio if the NPV of the acquisition is zero. (6)

2.1.3 What is the value of Bee-Bee to Honey? (5)