EPS and postmerger price Data for Henry Company and Mayer Services are given in the following table, Henry Company is considering merging with Mayer by swapping 1.35 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. a. Calculate the ratio of exchange in market price. b. Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company. c. Calculate the price/earnings (P/E) ratio used to purchase Mayer Services. d. Calculate the post-merger earnings per share (EPS) for Henry Company. e. Calculate the expected market price per share the merged firm. Data table C (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Item Henry Company Mayer Services $205,000 Earnings available for common stock $60,000 Number of shares of common stock outstanding 125,000 20,000 Market price per share $39 $57

EPS and postmerger price Data for Henry Company and Mayer Services are given in the following table, Henry Company is considering merging with Mayer by swapping 1.35 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. a. Calculate the ratio of exchange in market price. b. Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company. c. Calculate the price/earnings (P/E) ratio used to purchase Mayer Services. d. Calculate the post-merger earnings per share (EPS) for Henry Company. e. Calculate the expected market price per share the merged firm. Data table C (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Item Henry Company Mayer Services $205,000 Earnings available for common stock $60,000 Number of shares of common stock outstanding 125,000 20,000 Market price per share $39 $57

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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Finance Loki Inc. and Thor Inc. have entered into a stock swap merger agreement whereby Loki will pay a 35% premium over Thor’s pre-merger price. A. If Thor’s pre-merger price per share was $37 and Loki’s was $52, what exchange ratio will Loki need to offer? B. On the day of the merger announcement, the increase in Thor (the target firm’s) stock price will be ______(higher/lower) than 35% (the takeover premium). C. Based on your answer in part B of this question, explain why you think Thor’s stock price increase will be higher or lower than the takeover premium at the time of the merger announcement.
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