The directors of Bay $($Ltd$),$ a hotel and leisure group operating along the coastal seaboard of South Africa have appointed

you as a merger and acquisition specialist. They are considering the acquisition of Ola $($Ltd$).$ You are to advise

them whether or not to proceed with the project.

The following information is available:

Bay $($Ltd$)$ Ola $($Ltd$)$

Market price per share R$12\mathrm{.}00$ R$8\mathrm{.}00$

Earnings per share R$3\mathrm{.}00$ R$2\mathrm{.}40$

No$.$ of shares issued $2$ million $1$ million

$$ Cash payment to Ola Ltd $=$ R$14$ million.

$$ Synergy benefits of R$12$ million will accrue through the acquisition.

Required:

Assume the acquisition is based on market values with a cash payment:

$2\mathrm{.}1.$ Calculate the combined value of the proposed acquisition. $(2$ marks$)$

$2\mathrm{.}2.$ Determine the net present value of the proposal. $(2$ marks$)$

$2\mathrm{.}3.$ Calculate the acquisition premium. $(2$ marks$)$

$2\mathrm{.}4.$ Calculate the post$-$acquisition market price of the share. $(3$ marks$)$

$2\mathrm{.}5.$ Determine the post$-$acquisition increase$/$decrease price of the share. $(2$ marks$)$

Assume the acquisition is based on earnings per share:

$2\mathrm{.}6.$ Determine the exchange ratio based on earnings per share. $(2$ marks$)$

$2\mathrm{.}7.$ Compute the total number of shares in the proposed acquisition. $(3$ marks$)$

$2\mathrm{.}8.$ Calculate the post$-$acquisition earnings per share. $(4$ marks$)$

$2\mathrm{.}9.$ Calculate the benefits, if any, to the two parties. $(5$ marks$)$