High plc has an historic PER of 22 and Low plc has an historic PER of 12.

Both companies have 100 million shares in issue and produced earnings of £20m in the last financial year.

High has offered three of its share for every five held by Low's shareholders.

A. If you held 1,000 shares in Low and accepted the offer from High, by how much would your wealth increase assumming High's shares remain at the pre-bid price?

B. What is the bid premium being offered?

C. If High was able to increase the rate of growth of Low's earnings to the same as High's and therefore place them on the same PER as High, what would High's share price move to?

D. If High makes no changes to Low's operations and so earnings growth continues at its present rate what will the intrinsic value of a share in High be, assuming the current PERs reflect accurately future growth in earnings?

E. Explain the PER game and how High could continue to acquire firms, make no changes to underlying earnings and yet show a rising earnings per share trend.