What is the benefit of the acquisition

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As the finance manager of Al Hasan International, you are investigating the acquisition of Starlight Company. The following facts are given.

                                         Al Hasan                  Starlight

Earning per share          Rs.6.75                      Rs.2.5

Dividend per share         Rs.3.25                      Rs.1.00

Price per share              Rs.48                          Rs.15

Number of shares              60,00,000               20,00,000

Investors currently expect the dividends and earnings of Starlight to grow a steady rate of 7%. After acquisition this growth rate would increase to 8% without any additional investment.

Required:

Problem a. What is the benefit of this acquisition?

Problem b. What is the cost of this acquisition to Al Hasan if it pays (i) Rs.17 per share compensation (cash) to Starlight and (ii) offers one share for every 3 shares of Starlight?

Reference no: EM132887331

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