Question
In: Finance
Your company has earnings per share of $5. It has 11million shares outstanding, each of which...
Your company has earnings per share of $5. It has 11million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings of $3 per share,11million shares outstanding, and a price per share of $27. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offered an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. However, the actual premium that your company will pay for TargetCo when it completes the transaction will not be 20%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo without any synergies. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover (ignore time value of money).
a. What is the price per share of the combined corporation immediately after the merger is completed?
b. What is the price of your company immediately after the announcement?
c. What is the price of TargetCo immediately after the announcement?
d. What is the actual premium your company will pay?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Your company has earnings per share of $5. It has 1 million shares outstanding, each of...
Your company has earnings per share of $5. It has 1 million
shares outstanding, each of which has a price of $36. You are
thinking of buying TargetCo, which has earnings per share of $1,
1 million shares outstanding, and a price per share of $23.
You will pay for TargetCo by issuing new shares. There are no
expected synergies from the transaction. Suppose you offer an
exchange ratio such that, at current pre-announcement share
prices for both firms, the...
Your company has earnings per share of $ 5 It has 1 million shares? outstanding, each...
Your company has earnings per share of $ 5 It has 1 million
shares? outstanding, each of which has a price of $ 36. You are
thinking of buying? TargetCo, which has earnings of $ 3 per? share,
1 million shares? outstanding, and a price per share of $30 You
will pay for TargetCo by issuing new shares. There are no expected
synergies from the transaction. Suppose you offered an exchange
ratio such? that, at current? pre-announcement share prices for...
Your company has earnings per share of $4. It has 1million shares outstanding, each of which...
Your company has earnings per share of $4. It has 1million
shares outstanding, each of which has a price of $36. You are
thinking of buying TargetCo, which has earnings per share of $1,
1million shares outstanding, and a price per share of $22. You
will pay for TargetCo by issuing new shares. There are no expected
synergies from the transaction. Suppose you offer an exchange ratio
such that, at current pre-announcement share prices for both
firms, the offer represents...
Your company has earnings per share of $ 3.58It has 1.2million shares outstanding, each of which...
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...
Your company has earnings per share of $6. It has 1 million shares outstanding, each of...
Your company has earnings per share of
$6. It has 1 million shares outstanding, each of which has a
price of $60. You are thinking of buying TargetCo, which has
earnings per share of $3, & 1 million shares outstanding,
and a price per share of $52.50. You will pay for TargetCo by
issuing new shares. There are no expected synergies from the
transaction. Complete parts a through d below.
If you pay no premium to buy TargetCo, what will...
Your company has earnings per share of $3. It has 1 million shares outstanding, each of...
Your company has earnings per share of $3. It has 1 million
shares outstanding, each of which has a price of $45. You are
thinking of buying TargetCo, which has earnings of $3 per share,
1 million shares outstanding, and a price per share of $24. You
will pay for TargetCo by issuing new shares. There are no expected
synergies from the transaction. Suppose you offered an exchange
ratio such that, at current pre-announcement share prices for
both firms, the...
Your company has earnings per share of $ 3.84. It has 1.1 million shares outstanding, each...
Your company has earnings per share of $ 3.84. It has 1.1
million shares outstanding, each of which has a price of $ 38. You
are thinking of buying TargetCo, which has earnings per share of $
0.96, 1.4 million shares outstanding, and a price per share of $
25. 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...
Your company has earnings per share of $4. It has 1 million shares outstanding, each of...
Your company has earnings per share of $4.
It has 1 million shares outstanding, each of which has a price
of $43.
You are thinking of buying TargetCo, which has earnings per
share of $3, 1 million shares outstanding, and a price per share
of $21.
You will pay for TargetCo by issuing new shares. There are no
expected synergies from the transaction. Suppose you offer an
exchange ratio such that, at current pre-announcement share
prices for both firms, the...
Your company has earnings per share of $3. It has 1 million shares outstanding, each of...
Your company has earnings per share of $3. It has 1 million
shares outstanding, each of which has a price of $42. You are
thinking of buying TargetCo, which has earnings per share of $1,
1 million sharesoutstanding, and a price per share of $23. You
will pay for TargetCo by issuing new shares. There are no expected
synergies from the transaction. Suppose you offer an exchange ratio
such that, at current pre-announcement share prices for both
firms, the offer...
Your company has earnings per share of $ 4.40. It has 1.1 million shares outstanding, each...
Your company has earnings per share of
$ 4.40.
It has
1.1
million shares outstanding, each of which has a price of
$ 40.40.
You are thinking of buying TargetCo, which has earnings per
share of
$2.20,
1
million shares, and a price per share of
$23.60.
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 be your
earnings per share...
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