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Your company has earnings per share of $4.00. It has 1.0 million shares outstanding, each...

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Finance

Your company has earnings per share of $4.00. It has 1.0 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2.00, 1.0 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.

TargetCo has $2.00 in earnings, so if other companies in its industry are trading at 14 times earnings, then a starting point for a valuation of TargetCo in this transaction might be (select one):

a) $28.00

b) $28.20

c) $28.10

per share, implying a premium of (select one) :

a) 12.4%

b) 12.8%

c) 12.0%

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