Required: a. Given the above information, calculate the total share value of Zake plc using the earnings multiple approach, dividend discount model, discounted cash flow approach and price-book ratio approach. (35 marks) b. Using your answers to part a above, recommend the appropriate method for Zake plc to value its shares as a takeover target. (5 marks) C. Discuss TWO dubious reasons for a takeover to proceed. (10 marks) (Total 50 marks) Section B (Answer any ONE question from TWO questions) Question 2 The directors of Spitcane plc are considering making a bid for Zake plc. The latest share price for Spitcane plc is 6.00 and the company's earnings per share is 40p. The financial director of Spitcane plc has estimated a weighted average cost of capital of 15%. The directors of Spitcane estimate a single post-tax savings resulting from rationalization after the takeover of 40m, two years later. They have also projected a 3% annual increase in the after-tax earnings of Zake plc. An analyst provides a price-book ratio of 1.8 on Zake plc. You are provided with the information below: Balance Sheet of Zake plc. M Fixed assets Current assets Current liabilities M 290 76 (52) 8% Debentures (79) 235 Financed by: 0.25 ordinary shares Reserves 158 77 235 Profit and Loss of Zake plc (extract) M Profit before interest and tax 75.0 Interest payments (6.3) 68.7 Taxation (20.7) Earnings 48.0 Other Information Latest dividend per share (net) Past four years dividend payments (net) Equity beta for Zake plc Treasury bill yield Return on the market 12p 9p, 8p, 110, 11p 0.9 5% 18% Required: a. Given the above information, calculate the total share value of Zake plc using the earnings multiple approach, dividend discount model, discounted cash flow approach and price-book ratio approach. (35 marks) b. Using your answers to part a above, recommend the appropriate method for Zake plc to value its shares as a takeover target. (5 marks) C. Discuss TWO dubious reasons for a takeover to proceed. (10 marks) (Total 50 marks) Section B (Answer any ONE question from TWO questions) Question 2 The directors of Spitcane plc are considering making a bid for Zake plc. The latest share price for Spitcane plc is 6.00 and the company's earnings per share is 40p. The financial director of Spitcane plc has estimated a weighted average cost of capital of 15%. The directors of Spitcane estimate a single post-tax savings resulting from rationalization after the takeover of 40m, two years later. They have also projected a 3% annual increase in the after-tax earnings of Zake plc. An analyst provides a price-book ratio of 1.8 on Zake plc. You are provided with the information below: Balance Sheet of Zake plc. M Fixed assets Current assets Current liabilities M 290 76 (52) 8% Debentures (79) 235 Financed by: 0.25 ordinary shares Reserves 158 77 235 Profit and Loss of Zake plc (extract) M Profit before interest and tax 75.0 Interest payments (6.3) 68.7 Taxation (20.7) Earnings 48.0 Other Information Latest dividend per share (net) Past four years dividend payments (net) Equity beta for Zake plc Treasury bill yield Return on the market 12p 9p, 8p, 110, 11p 0.9 5% 18%