The board of Hanging Valley plc wishes to take over Rattling Creek Ltd. Shown below are summarised financial data for the two companies:

Hanging Valley's earnings and dividends have been increasing at 15 per cent per year in recent times, while over the same period the earnings and dividends of Rattling Creek have remained static. The current market price of Hanging Valley's ordinary shares is £1.60. The board of Hanging Valley believes that Rattling Creek shareholders will accept a share-forshare offer of four shares in Hanging Valley for every five shares in Rattling Creek.
(a) Using three different valuation methods, determine the effect on the wealth of
Hanging Valley plc's shareholders if Rattling Creek Ltd's shareholders accept the proposed share-for-share offer.
(b) Critically discuss the economic reasons why one company may seek to take over another.

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Profit before interest and tax Ordinary share dividends Corporate tax rate Financial position statement extracts Hanging Valley plc £420,000 6.9p 3596 Rattling Creek Ltd £200,000 14.0p 3596 Non-current assets Current assets Total assets Equity Hanging Valley plc 1,750,000 800,000 2,550,000 Rattling Creek Ltd 800,000 500,000 1,300,000 500,000 400,000 900,000 200,000 200,000 1,300,000 Ordinary shares (£1) Reserves 1,500,000 600,000 2,100,000 10% bonds Current liabilities Total liabilities 450,000 2,550,000