Ibajane PLC is planning to make a bid for the entire share capital of Luano PLC, a companyoperating in the same industry of honey processing. Ibajane PLC is expected that a bid of K75,000 of the entire share capital of Luano PLC will be successful and most likely to be approvedby the regulators. The acquisition of Luano PLC will increase Ibajane PLC’s after tax operatingcash flows over the next few years by:
Year 1 K35, 600
Year 2 K37, 400
Year 3 K38, 300
Year 4 K39, 100
Luano PLC has K15, 000 par value of 5.75% irredeemable debenture trading at par. Luano PLChas an equity beta of 1.941, Zambia’s sovereign Eurobond yield is 8% and the average marketreturn on Lusaka Stock Exchange (LUSE) is 10%. The corporation tax is at 30%. Farimportantly, Ibajane PLC always discount cash flows using the weighted average cost of capital.

REQUIRED:
Evaluate whether the acquisition of Luano PLC will add value to Ibajane PLC?