Question: Case Study IC (23 marks) Xola Ltd is considering the acquisition of Hate Ltd. Xola's price-earnings ratio is 12 and it has 6m ordinary shares

 Case Study IC (23 marks) Xola Ltd is considering the acquisition

Case Study IC (23 marks) Xola Ltd is considering the acquisition of Hate Ltd. Xola's price-earnings ratio is 12 and it has 6m ordinary shares in issue-it's after tax earnings amount to R16m per annum. Hate Ltd has a price. earnings ratio of 8 and has an issued ordinary share capital of 2million shares. Hate's after-tax earnings amount to R3m per annum. Earnings and dividends of Hate Ltd are expected to grow at a constant rate of 10% per aninum, without merger. The merger is expected to increase the growth rate in Hate's Ltd earnings and dividends to 12% per annum. Hate has a current dividend cover of three. Xola Ltd's tax rate is 28\%. The merger will result in an immediate increase, due to synergy, in after-tax earnings of p2.5m per annum. Xola Ltd's shareholders, based on the level of risk involved in Hate, require a return of 15% per annum from any investment in Hate Ltd. Case Study IC (23 marks) Xola Ltd is considering the acquisition of Hate Ltd. Xola's price-earnings ratio is 12 and it has 6m ordinary shares in issue-it's after tax earnings amount to R16m per annum. Hate Ltd has a price. earnings ratio of 8 and has an issued ordinary share capital of 2million shares. Hate's after-tax earnings amount to R3m per annum. Earnings and dividends of Hate Ltd are expected to grow at a constant rate of 10% per aninum, without merger. The merger is expected to increase the growth rate in Hate's Ltd earnings and dividends to 12% per annum. Hate has a current dividend cover of three. Xola Ltd's tax rate is 28\%. The merger will result in an immediate increase, due to synergy, in after-tax earnings of p2.5m per annum. Xola Ltd's shareholders, based on the level of risk involved in Hate, require a return of 15% per annum from any investment in Hate Ltd

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