-8- QUESTION 4: Baba Ali Limited (BA) is considering acquiring Centten Inc (CT). It is expected that after the acquisition earning per share of the merged firm will be $8.0. Below is some needed information: BA CT Earnings per share $6 $7 Price per share Price Earnings Ratio 20 15 Number of Shares 10,000,000 5,000,000 Total Earnings Merged Firm Total Market Value It is expected that synergies will increase total earnings and total value of the merged firm to $120,000,000 and $1,950,000,000 respectively. a. Complete the above table. b. How many shares of BA are exchanged for each share of CT? c. What is the cost of merger to BA? d. What is the change in the total market value of those BA shares that were outstanding before the merger? Explain the reason for the change.
-8- QUESTION 4: Baba Ali Limited (BA) is considering acquiring Centten Inc (CT). It is expected that after the acquisition earning per share of the merged firm will be $8.0. Below is some needed information: BA CT Earnings per share $6 $7 Price per share Price Earnings Ratio 20 15 Number of Shares 10,000,000 5,000,000 Total Earnings Merged Firm Total Market Value It is expected that synergies will increase total earnings and total value of the merged firm to $120,000,000 and $1,950,000,000 respectively. a. Complete the above table. b. How many shares of BA are exchanged for each share of CT? c. What is the cost of merger to BA? d. What is the change in the total market value of those BA shares that were outstanding before the merger? Explain the reason for the change.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:-8-
QUESTION 4:
Baba Ali Limited (BA) is considering acquiring Centten Inc (CT). It is expected that after the
acquisition earning per share of the merged firm will be $8.0. Below is some needed
information:
BA
CT
Earnings per share
$6
$7
Price per share
Price Earnings Ratio
20
15
Number of Shares
10,000,000
5,000,000
Total Earnings
Merged Firm
Total Market Value
It is expected that synergies will increase total earnings and total value of the merged firm to
$120,000,000 and $1,950,000,000 respectively.
a. Complete the above table.
b. How many shares of BA are exchanged for each share of CT?
c. What is the cost of merger to BA?
d. What is the change in the total market value of those BA shares that were outstanding before
the merger? Explain the reason for the change.
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