The following data are pertinent for companies A and B. A B Present Earnings Shs 20 million Shs 4 million No of shares Sh10 million Sh 1 million Price/earning ratio 18 10 (a) If the two companies were to merge and the exchange ratio were one share of Company A for each share of Company B, what would be the initial impact on earnings per share of the two companies? what is the market value exchange ratio? Is the merger likely to take place? (b) If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above? (c) If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would happen? (d)What exchange ratio would you re
The following data are pertinent for companies A and B.
A B
Present Earnings Shs 20 million Shs 4 million
No of shares Sh10 million Sh 1 million
Price/earning ratio 18 10
(a) If the two companies were to merge and the exchange ratio were one share of Company A for
each share of Company B, what would be the initial impact on earnings per share of the two companies?
what is the market value exchange ratio? Is the merger likely to take place?
(b) If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above?
(c) If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would
happen?
(d)What exchange ratio would you recommend?
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