Answer ALL the questions that follow.

QUESTION $1$

$(25$ Marks$)$

Mike Limited, a software development company is contemplating the acquisition of Ross Limited by means of a share

issue. The combination of the two firms' operations will result in economies of scale and the additional value generated

is estimated to be R$24$ million. It was agreed that the purchase consideration for the acquisition should be based on an

exchange of $1\mathrm{.}4$ shares of Ross Limited for each share of Mike Limited.

The key acquisition data provided for this acquisition is as follows:

Mike Limited possesses $18\mathrm{.}8$ million shares with a market price of R$32$ per share and earnings after tax of R$26$ million,

whereas Ross Limited has $13\mathrm{.}2$ million shares with a market price of R$28$ per share and earnings after tax of R$19$ million.

Required:

$1\mathrm{.}1$ Calculate the combined value of the proposed acquisition.

$(3$ marks$)$

$1\mathrm{.}2$ Calculate the total number of shares in the proposed acquisition.

$(2$ marks$)$

$1\mathrm{.}3$ Determine the proposed post$-$acquisition market price per share. $(2$ decimal places$)$

$(2$ marks$)$

$1\mathrm{.}4$ Will the shareholders of Mike Limited be happy with this price? Why?

$(2$ marks$)$

$1\mathrm{.}5$ How much will the shareholders of Ross Limited gain or lose on a per share basis.

$(2$ marks$)$

$1\mathrm{.}6$ Determine the purchase price of Ross Limited that is implied by the $1\mathrm{.}4$ exchange ratio.

$(3$ marks$)$

$1\mathrm{.}7$ Calculate the net present value of the proposed acquisition.

$(4$ marks$)$

$1\mathrm{.}8$ Calculate the proposed acquisition premium.

$(3$ marks$)$

$1\mathrm{.}9$ Compute the earnings per share for Mike Limited before and after the proposed acquisition. Assume that the

earnings after tax after the proposed acquisition is R$35$ million.