Orion and Mintaka Acquisition, Earnings per Share, Price per Share, and More

There are no gains associated with the acquisition. In exchange for Mintaka’s shares, Orion issues just enough of its own shares to ensure its 267p earnings per share objective.Please find the following information:OrionMintakaEarnings per Share£2.00£2.50Price per Share£40£25Price-Earnings Ratio2010Number of Shares100,000200,000Earnings£200,000£500,000Market Value£4,000,000£5,000,000Required:a)How many shares in the combined firm have to be offered for each share inMintaka?b)Derive the earnings per share, price per share, price-earnings ratio, earnings,and market value associated with the combined firm.c)What is the cost of the acquisition to Orion?d)What is the change in the market value of Orion’s shares that wereoutstanding before the acquisition?Question 3TinResources (TR), an all-equity firm, is considering purchasing the rights to operate aniron ore mine in the Pilbara region of Western Australia. Acquiring the rights will cost $60,000today but will also oblige TR to pay substantial environmental rehabilitation costs of$250,000 when the mine is shut down in 3 years’ time. While in operation, the mine is expectedto produce 20,000 tonnes of iron ore per year, with extraction costs running at $93 per tonne.Although TR knows it can sell iron ore in the market for $100 per tonne in the first year, it facesconsiderable uncertainty regarding the future iron ore price, which is equally likely to rise by10% or fall by 15% in each of the subsequent two years.There are no taxes or any other costs. Unless otherwise stated, assume any cash flows occurat the end of each year. Use a discount rate of 20%for all cash flows. Show your calculations.Required:a)Draw a binomial tree depicting the possible market prices of iron ore duringthe mine’s operating life. Remember, the price in year 1 is known withcertainty. What is the expected market price of iron ore in years 2 and 3?b)Calculate the NPV of the project. Should TR purchase the rights?Now assume that TR has the ability to temporarily halt extraction operations if iron ore pricesmove adversely. However, by doing so, it cannot avoid paying the environmental rehabilitationcosts at the end of the mine’s life.c)When will TR choose to exercise this option? Explain fully.d)Determine the value of the abandonment option