Your company has earnings per share of $4. It has 1 million shares outstanding, each...
70.2K
Verified Solution
Link Copied!
Question
Finance
Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $35. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Complete parts a through d below.
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 20% 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 (P/E) 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 pre-merger (P/E) ratio?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
