Kubwa ltd is considering acquiring Ndogo ltd through a share exchange. Under the terms of acquisition, Kubwa ltd will offer one of its shares in exchange for every two shares in Ndogo ltd. The summarized financial information relating to the two companies for the year ending 30 November 2022 are as follows:                                                          Kubwa ltd                     Ndogo ltd Profit after tax (sh)                           150 million                   30 million Number of shares                            25 million                     8 million Earnings per share (sh)                    6.00                              3.75 Market price per share (sh)             78.00                            33.75 Price earnings ratio                        13.00                              9.00   Required: i) The earnings per share of the combined company after merger.
ii) If the share price earning ratio after the merger falls to 12, what would be the premium received by the shareholders of Ndogo ltd (using the combined company’s new share price)
iii) The share price earning ratio after the merger falls to 12, would the merger be beneficial to the shareholders of Kubwa ltd? Justify your answer.  ​