Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.ItemHenry CompanyMayor ServicesEarnings Available for Common Stock$225,000$50,000 Number of Shares of Common Stock Outstanding$90,000$15,000Market Price per Share$45$50 Calculate the price/earnings (P/E) ratio used to purchase Mayer Services.Calculate the post-merger earnings per share (EPS) for Henry Company.Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.

Answer a Ratio of exchange in market price= [$45*1.25]/$50= 1.125 Answer b Henry Company EPS=…

Answered: Data for Henry Company and Mayer…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.

Item	Henry Company	Mayor Services
Earnings Available for Common Stock	$225,000	$50,000
Number of Shares of Common Stock Outstanding	$90,000	$15,000
Market Price per Share	$45	$50

Calculate the price/earnings (P/E) ratio used to purchase Mayer Services.
Calculate the post-merger earnings per share (EPS) for Henry Company.
Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.

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