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

eamings 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 eamings 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 $1,4$ 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 eamings after

tax after the proposed acquisition is R$35$ milion.