How many new shares of stock will Expanding have to issue to make the proposed merger? If the earnings for each firm remain unchanged, what will the postmerger earnings per share be?
EPS and merger terms Expanding Corporation is interested in acquiring Target Company by swapping 0.4 share of its stock for each share of Target's stock. Expanding Co. has sufficient authorized but unissued shares to carry out the proposed merger. Certain financial data on these companies are given in the following table.
|
Item |
Expanding Co. |
Target Co. |
|
Earnings Available for common stock |
$200,000 |
$50,000 |
|
Number of shares of common stock outstanding |
50,000 |
20,000 |
|
Earnings per share (EPS) |
$4.00 |
$2.50 |
|
Market price per share |
$50 |
$15 |
|
Price/earnings (P/E) ratio |
12.5 |
6 |
How many new shares of stock will Expanding have to issue to make the proposed merger? If the earnings for each firm remain unchanged, what will the postmerger earnings per share be?
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