Question

In: Finance

Consider the following premerger information about Firm A and Firm B: Firm A Firm B   Total...

Consider the following premerger information about Firm A and Firm B:

Firm A Firm B
  Total earnings $ 1,900 $ 500
  Shares outstanding 900 250
  Price per share $ 37 $ 41

Assume that Firm A acquires Firm B via an exchange of stock at a price of $43 for each share of B's stock. Both A and B have no debt outstanding.

a.

What will the earnings per share (EPS) of Firm A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  EPS $   
b.

What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price–earnings ratio does not change)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Price per share $   
c.

What will the price–earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Price–earnings ratio times
d-1

If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Price per share $   
d-2

What will the price–earnings ratio be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Price–earnings ratio times
d-3

What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low?

Too high
Too low

Solutions

Expert Solution

­

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

Consider the following premerger information about Firm A and Firm B: Firm A Firm B Total...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B Total earnings $ 2,600 $ 500 Shares outstanding 1,000 250 Price per share $ 33 $ 37 Assume that Firm A acquires Firm B via an exchange of stock at a price of $39 for each share of B's stock. Both A and B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger? (Do not...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B   Total...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B   Total earnings $ 2,700 $ 900   Shares outstanding 1,000 200   Price per share $ 29 $ 33 Assume that Firm A acquires Firm B via an exchange of stock at a price of $35 for each share of B's stock. Both A and B have no debt outstanding. a. What will the earnings per share, EPS, of Firm A be after the merger? (Do not...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B Total...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B Total earnings $ 2,100 $ 600 Shares outstanding 1,100 300 Price per share $ 39 $ 43 Assume that Firm A acquires Firm B via an exchange of stock at a price of $45 for each share of B's stock. Both Firm A and Firm B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger?...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B   Total...
Consider the following premerger information about Firm A and Firm B: Firm A Firm B   Total earnings $ 2,000 $ 1,000   Shares outstanding 1,100 250   Price per share $ 39 $ 43 Assume that Firm A acquires Firm B via an exchange of stock at a price of $45 for each share of B's stock. Both Firm A and Firm B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger?...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares outstanding 5,200 1,800 Price per share $ 43 $ 18 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,100. Firm T can be acquired for $20 per share in cash or by exchange of stock wherein B offers one of its share...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares outstanding 5,800 1,300 Price per share $45 $16 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,400. a. If Firm T is willing to be acquired for $18 per share in cash, what is the NPV of the merger? (Do not round...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T   Shares outstanding 4,800 1,200   Price per share $ 44 $ 16 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,900. a. If Firm T is willing to be acquired for $18 per share in cash, what is the NPV of the merger? b....
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.     Firm B Firm T   Shares outstanding 6,000 1,200   Price per share $ 47 $ 17    Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T   Shares outstanding 5,400 1,300   Price per share $ 53 $ 23 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $7,900. a. If Firm T is willing to be acquired for $25 per share in cash, what is the NPV of the merger?   NPV...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.      Firm B Firm T   Shares outstanding 6,000 1,200   Price per share $ 47 $ 17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of its...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT