Question

Your company has earnings per share of $ 3.58It has 1.2million shares​ outstanding, each of which has a price of $ 43. You are thinking of buying​ TargetCo, which has earnings per share of $1.19​, 1.2 million shares​ outstanding, and a price per share of $28. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.

a. If you pay no premium to buy​ TargetCo, what will your earnings per share be after the​ merger?

b. Suppose you offer an exchange ratio such​ that, at current​ pre-announcement share prices for both​ firms, the offer represents a 25%premium to buy TargetCo. What will your earnings per share be after the​ merger?

c. What explains the change in earnings per share in part

​(a​)? Are your shareholders any better or worse​ off?

d. What will your​ price-earnings ratio be after the merger​ (if you pay no​ premium)? How does this compare to your​P/E ratio before the​ merger? How does this compare to​ TargetCo's premerger​ P/E ratio?

a. If you pay no premium to buy​ TargetCo, what will your earnings per share be after the​ merger?

The EPS after the merger is

​$___ (Round to the nearest​ cent.)

b. Suppose you offer an exchange ratio such​ that, at current​ pre-announcement share prices for both​ firms, the offer represents a 25%

premium to buy TargetCo. What will your earnings per share be after the​ merger?

The EPS after the merger is $___ (Round to the nearest​ cent.)

c. What explains the change in earnings per share in part

​(a​)?  (Select the best choice​ below.)

A.EPS declines because you are over minus paying for TargetCo.EPS declines because you are over−paying for TargetCo.

B.EPS always decline if the firm issues new shares to pay for a merger.EPS always decline if the firm issues new shares to pay for a merger.

C.EPS declines because TargetCo has a higher price dash earnings ratio than your firm.EPS declines because TargetCo has a higher price-earnings ratio than your firm.

Are your shareholders any better or worse​ off?  ​(Select the best choice​ below.)

A.In this​ case, your shareholders are neither worse nor better off.

B.In this​ case, your shareholders are worse off.

C.In this​ case, your shareholders are better off.

d. What will your​ price-earnings ratio be after the merger​ (if you pay no​ premium)? How does this compare to your​P/E ratio before the​ merger? How does this compare to​ TargetCo's premerger​ P/E ratio?

The​ P/E ratio after the merger is ____ (Round to two decimal​ places.)

How does this compare to​ TargetCo's premerger​ P/E ratio?

The​ P/E ratio before the merger was _____​ (Round to two decimal​ places.)

​TargetCo's premerger​ P/E ratio was _____ (Round to two decimal​ places.)

​(Select from the 3 options below)

Buying TargetCo with stock and creating no​ synergies, the transaction simply​ ends-up with a company whose​ P/E ratio is

between

above

below

the​ P/E ratios of the two companies going into the transaction.

Answer 1

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