a. Big Ltd. is contemplating acquiring small Ltd. to consolidate its market share. The following financial data is available about the two companies;
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Orange limited
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Rainbow limited
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Annual sales (million)
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Sh. 375
|
Sh.45
|
|
Net income (million)
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Sh. 30
|
Sh.3.75
|
|
Ordinary shares outstanding (million)
|
7.5
|
1.5
|
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Earnings per share
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Sh.4
|
Sh.2.5
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Market price per share
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Sh.42
|
Sh.18
|
Required
i. Maximum exchange ratio Big Ltd should agree to if it expects no dilution in its EPS
ii. Premium the shareholders of small would receive at an exchange ratio obtained in (i) above
iii. Big Ltd post acquisition EPS if the two companies agree at an offer price of Kshs 2.1
iv. Big Ltd EPS if every 50 shares of rainbow Ltd are exchanged for one 12% debentures of Kshs 1000 per value