World Enterprises is determined to report earnings per share of $3.20. It therefore acquires the...
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World Enterprises is determined to report earnings per share of $3.20. It therefore acquires the Wheelrim and Axle Company. There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $3.20 earnings per share objective.
a. Complete the table below for the merged firm. (Do not round intermediate calculations. Round "Price per share" and "Price-earnings ratio" to 2 decimal places and other answers to the nearest whole number.)
World Enterprises
Wheelrim and Axle
Merged Firm
Earnings per share
$2.00
$3.00
$3.20
Price per share
$30
$15
Price-earnings ratio
15
5
Number of shares
180,000
280,000
Total earnings
$360,000
$840,000
Total market value
$5,400,000
$4,200,000
b. How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle?
Shares exchanged?
c. What is the cost of the merger to World Enterprises?
Merger Cost?
d. What is the change in the total value of the World Enterprises shares that were outstanding before the merger?
The market value of the original World shareholders' shares
by
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