Commons plc has distributable earnings of £120m, a weighted average cost of capital of 7 per cent and a price/earnings ratio of 18.2 times. It is in the process of taking over Hulse plc, whose financial details are as follows: 

Commons plc expects to maintain an annual increase in distributable earnings of 2 per cent due to anticipated synergy as a result of the takeover. The company will also be able to sell surplus non-current assets for £60m in two years’ time. The current estimate of cash flows of Hulse plc is £38m, but these are expected to grow at an annual rate of 4 per cent in future years. The risk-free rate of return is 4.5 per cent and the equity risk premium is 5 per cent. Companies in the same sector as Hulse plc have an average price/earnings ratio of 15.5 times and a weighted average cost of capital of 9 per cent.

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Hulse plc: key financial data Profit before interest and tax (PBIT) Interest paid Corporate tax Distributable earnings Current dividend per share Last 4 years' dividends (most recent last) Earnings per share (EPS) Price/earnings ratio Market price of ordinary shares Equity beta Replacement cost of non-current assets Net realisable value of non-current assets £77.00m £12.30m £12.29m £52.41 m 12p 10.5p, 11p, 11.2p, 11.5p 21.3p 11.74 times £2.50 1.17 £305m £270m