You have recently accepted an appointment as a financial analyst at Reeba, a well$-$established advisory firm. Your line manager has provided you with the following financial information as part of your first assignment.

Alpha A and Beta B both operate in the shoe manufacturing industry. Your client has approached you to assist them in determining which company they should include in their portfolio of investments.

Alpha A

Beta B

Earnings per share

R$3,75$

R$10,85$

Dividends per share

R$1,50$

R$7,50$

Growth in earnings

$8\%$

$4\%$

Price range

R$30$ R$39$

R$84$ R$90$

Beta

$1,3$

$0,8$

Risk$-$free return

$8\%$

$8\%$

Expected market return

$12,5\%$

$12,5\%$

One of the strategic goals of Alpha A is to achieve a growth of $25\%$ on current operations by $2025.$ One of the ways this can be achieved is by expanding the existing operations into the neighboring country of Lesotho. This would entail introducing the brand into the Lesotho market and establishing an ongoing presence in the country. The alternative would be to merge with an existing shoe manufacturer in the same targeted market. The company has identified a target company with a similar size and goals which they could potentially merge with by purchasing the entire shareholding.

Required:

a$.$ On the assumption that the companies$$ growth rates will continue, develop an estimate of the value of the ordinary shares and compare the value that you have calculated to the share price on the market. $(6)$

b$.$ Identify and discuss $5$ factors that management should consider in making the decision between acquiring the target company or embarking on an organic growth strategy. $(10)$You have recently accepted an appointment as a financial analyst at Reeba, a well$-$established advisory firm. Your line manager has

provided you with the following financial information as part of your first assignment.

Alpha A and Beta B both operate in the shoe manufacturing industry. Your client has approached you to assist them in determining

which company they should include in their portfolio of investments.

One of the strategic goals of Alpha A is to achieve a growth of $25\%$ on current operations by $2025.$ One of the ways this can be

achieved is by expanding the existing operations into the neighboring country of Lesotho. This would entail introducing the brand into

the Lesotho market and establishing an ongoing presence in the country. The alternative would be to merge with an existing shoe

manufacturer in the same targeted market. The company has identified a target company with a similar size and goals which they

could potentially merge with by purchasing the entire shareholding.

Required:

a$.$ On the assumption that the companies' growth rates will continue, develop an estimate of the value of the ordinary shares and

compare the value that you have calculated to the share price on the market.

b$.$ Identify and discuss $5$ factors that management should consider in making the decision between acquiring the target company or

embarking on an organic growth strategy. $(10)$