Xola Ltd is considering the acquisition of Hate Ltd. Xola's price-earnings ratio is 12 and it has 6m ordinary shares in issue. It's after tax earnings amount to R16m per annum. Hate Ltd has a price- earnings ratio of 8 and has an issued ordinary share capital of 2million shares. Hate's after-tax earnings amount to R3m per annum.

Earnings and dividends of Hate Ltd are expected to grow at a constant rate of 10% per annum, without merger. The merger is expected to increase the growth rate in Hate's Ltd earnings and dividends to 12% per annum. Hate has a current dividend cover of three. Xola Ltd's tax rate is 28%. The merger will result in an immediate increase, due to synergy, in after-tax earnings of R2,5m per annum. Xola Ltd's shareholders, based on the level of risk involved in Hate, require a return of 15% per annum from any investment in Hate Ltd.

Required:

1.	What value would Xola place on each share in Hate Ltd?	5
2.	Xola is considering offering 2,3 million of its ordinary shares for the ordinary shares in Hate Ltd. Calculate the immediate effect on the earnings per share of Xola and Hate's shareholders.	6
3.	Xola is considering a cash offer of R19 per share in Hate. Xola can borrow at 15% per annum to finance the cash offer. Determine how this option would impact on Xola's current earnings per share after the merger. Advise on whether to take the cash or share offer, by discussing all the factors that will affect the decision.