Find maximum exchange ratio big ltd should agree

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Reference no: EM131251929

a. Big Ltd. is contemplating acquiring small Ltd. to consolidate its market share. The following financial data is available about the two companies;

	Orange limited	Rainbow limited
Annual sales (million)	Sh. 375	Sh.45
Net income (million)	Sh. 30	Sh.3.75
Ordinary shares outstanding (million)	7.5	1.5
Earnings per share	Sh.4	Sh.2.5
Market price per share	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

Reference no: EM131251929

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