Assignment $2($Merger Questions $10\%)$

BA$/$JUNE $2024/$FIN$537$

QUESTION $4$

b$)$ Firm AA intend to acquire Firm BB at a price of RM $3$ million. However, they still have not decided whether the acquisition should be done on cash or stock basis. It is estimated that the acquisition could create synergy worth RM $1$ million. Below are some information regarding both firms:$-$

$\backslash$table$[[,$Firm AA$,$Firm BB$],[$Number of Shares,$300000,100000],[$Price per share,RM $40,$RM$25],[$Earnings Per Share,RM$15,$RM $5]]$

i$)$ Calculate merger premium of the exercise.

$(2$ marks$)$

ii$)$ Let say that the merger done based on the market price per share, would it happen on cash or stock basis?

$(8$ marks$)$

iii$)$ Calculate the NPV of the merger on cash and stock basis.

$(5$ marks$)$

iv$)$ Calculate the post$-$merger EPS for the firm, if the merging exercise was done by exchanging stock

$(5$ marks$)$

End of Question

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