Consider the following information available on two companies: Trillium BECO 60p Earnings per share (recent) Dividends per share (recent) Number of shares 16p 8p 30p 8m 2m Share price 800p 104p The cost of equity capital for both firms is 10%

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Consider the following information available on two companies: Trillium BECO 60p Earnings per share (recent) Dividends per share (recent) Number of shares 16p 8p 30p 8m 2m Share price 800p 104p The cost of equity capital for both firms is 10%. BECO is expected to produce a growth in dividends of 3.5% per annum to infinity with its current strategy and management. However, if Trillium acquired BECO and applied superior management and gained benefits from economies of scale the growth rate would rise to 7% on the same capital base. The transaction costs of the merger would amount to £600,000. Required: Find out the value that would be created from the merger.