QUESTION TWO Corporate Finance (25 Marks) Bella Limited, a software development company is contemplating the acquisition of Bong 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 Bong Limited acquisition should be based on an exchange of 1.4 shares of Lexis Limited for each share of Bong Limited.

Key acquisition data is detailed below: Company No. of shares Price per share Earnings after Tax Bella Limited 18.8 million R32 R26 million Bong Limited 13.2 million R28 R19 million

Required: 2.1 Calculate the combined value of the proposed acquisition. (3) 2.2 Calculate the total number of shares in the proposed acquisition. (2) 2.3 Determine the proposed post-acquisition market price per share. (2 decimal places) (2) 2.4 Will the shareholders of Bella Limited be happy with this price? Why? (2) 2.5 How much will the shareholders of Bong Limited gain or lose on a per-share basis. (2) 2.6 Determine the purchase price of Bong Limited that is implied by the 1.4 exchange ratio. (3) 2.7 Calculate the net present value of the proposed acquisition. (4) 2.8 Calculate the proposed acquisition premium. (3) 2.9 Compute the earnings per share for Bella Limited before and after the proposed acquisition. Assume that the earnings after tax after the proposed acquisition is R35 million. (4)