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Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and...

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Finance

Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. If Rearden offers an exchange ratio such that, at current pre- announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then actual premium Rearden will pay will be closest to:

A. 14.7%

B. 20.0% C. 18.0% D. 22.4%

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