a)Discuss and evaluate the motives for mergers and acquisitions that could potentially create value for shareholders.(6marks)
b)You are provided with the following information regarding Company
A:Over the past four years,Company A’s management has increased their dividend per share every year and their dividendper sharehas grown from 27p to 44p.
Company A’s shareholders require a return of 15%.The most recent EPS (earnings per share) of Company A is 250pand the average PER (price earnings ratio) for the sector is 12. The statement of financial position (the balance sheet) forCompany A shows anet asset value of £15m.
The property and land however haverecently been revalued by independent valuers and have risen by £3m in value over the balance sheet value.
In addition,managers are concerned that some of their customers who owe them money will be unable to pay. They estimate they will have to write off £1.5m from accounts receivable. The company has 10millionshares in issue.
Required:
i)Using the information aboveand a different method for each valuation,calculate three valuations on a per sharebasis for Company A.(6 marks)
ii)Explain and discuss any differences in the three valuations calculated in part i) above. (4marks)
iii)Discuss howinformation sign alling may potentially explain why Company A has maintained growth in the dividendpaid out to shareholders
