Question $4$

Read the scenario below and answer the questions that follow:

Ecotel Ltd is a tourism company listed on the Johannesburg Stock Exchange. The recent pandemic, Covid$-19,$ that has negatively affected the leisure industry world$-$wide, has not spared Ecotel. This has affected some growth prospects for $2020,$ which management was expecting to be $25\%.$ The growth rate was revised downwards to $10\%.$ To accelerate growth the company is seeking to acquire a company in the same industry. The management of Ecotel Ltd has identified Cola Ltd as the best and most suitable candidate.

In the case of a merger between Ecotel Ltd and Cola Ltd$,$ management anticipates that the return will increase by $3\%$ and the combined net profit will increase by R$1\mathrm{.}5$ million. On $31$ December $2018,$ each company paid the dividend for the year ended on that date. The current market value, on $1$ January $2019,$ of Ecotel Ltd$\text{'}$s ordinary shares was R$6$ per share. Cola Ltd$\text{'}$s price per share is currently R$2\mathrm{.}50$ per share.

The following information is available for use:

Summarised Profit and Loss Accounts for the Year Ended $31$ December $2018$

$\backslash$table$[[,$Ecotel Ltd$,$Cola Ltd$],[,$R$\text{'}000,$R$\text{'}000],[$Sales$,95000,30000],[$Expenses $($incl$.$ tax$),(85000),(25000)$