Your company has earnings per share of $8. It has 1 million shares outstanding, each of which has a price of $60. You are thinking of buying TargetCo, which has earnings per share of $4, 1 million shares outstanding, and a rice per share of $45. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Complete parts a through d below. a. If you pay no premium to buy TargetCo, what will your earnings per share be after the merger? Your new earnings per share will be $ (Round to the nearest cont.) 25% b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a Your new earnings per share will be $ (Round to the nearest cent.) c. What explains the change in earnings per share in part a? Are your shareholders any better or worse off? premium to buy TargetCo. What will your earnings per share be after the merger? OA. In part a, the change in the EPS came from combining the two companies without synergies or premiums. Since the EPS decreased from $8, shareholders are worse off. B. In part a, the change in the EPS came from combining the two companies without synergies or premiums. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off. OC. In part a, the change in the EPS came from the stocks sold by TargetCo. Since the original stockholder's of your company have acquired those from TargetCo, your stockholders are better off. OD. In part a, the change in the EPS came from the stocks sold by TargetCo. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off d. What will your price-eamings (P/E) ratio be after the merger (if you pay no premium)? How does this compare to your (P/E) ratio before the merger? How does this compare to TargetCo's pre-merger (P/E) ratio? Your P/E ratio after the merger is which is greater than your P/E ratio before the merger of Your P/E ratio after the merger is less than TargetCo's pre-merger P/E ratio of 7.
Your company has earnings per share of $8. It has 1 million shares outstanding, each of which has a price of $60. You are thinking of buying TargetCo, which has earnings per share of $4, 1 million shares outstanding, and a rice per share of $45. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Complete parts a through d below. a. If you pay no premium to buy TargetCo, what will your earnings per share be after the merger? Your new earnings per share will be $ (Round to the nearest cont.) 25% b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a Your new earnings per share will be $ (Round to the nearest cent.) c. What explains the change in earnings per share in part a? Are your shareholders any better or worse off? premium to buy TargetCo. What will your earnings per share be after the merger? OA. In part a, the change in the EPS came from combining the two companies without synergies or premiums. Since the EPS decreased from $8, shareholders are worse off. B. In part a, the change in the EPS came from combining the two companies without synergies or premiums. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off. OC. In part a, the change in the EPS came from the stocks sold by TargetCo. Since the original stockholder's of your company have acquired those from TargetCo, your stockholders are better off. OD. In part a, the change in the EPS came from the stocks sold by TargetCo. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off d. What will your price-eamings (P/E) ratio be after the merger (if you pay no premium)? How does this compare to your (P/E) ratio before the merger? How does this compare to TargetCo's pre-merger (P/E) ratio? Your P/E ratio after the merger is which is greater than your P/E ratio before the merger of Your P/E ratio after the merger is less than TargetCo's pre-merger P/E ratio of 7.
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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solve b c and d
Transcribed Image Text:Your company has earnings per share of $8. It has 1 million shares outstanding, each of which has a price of $60. You are thinking of buying TargetCo, which has earnings per share of $4, 1 million shares outstanding, and a
price per share of $45. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Complete parts a through d below.
a. If you pay no premium to buy TargetCo, what will your earnings per share be after the merger?
Your new earnings per share will be $
(Round to the nearest cent.)
25%
b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a
1
Your new earnings per share will be $
(Round to the nearest cent.)
c. What explains the change in eamings per share in part a? Are your shareholders any better or worse off?
premium to buy TargetCo. What will your earnings per share be after the merger?
OA. In part a, the change in the EPS came from combining the two companies without synergies or premiums. Since the EPS decreased from $8, shareholders are worse off.
B. In part a, the change in the EPS came from combining the two companies without synergies or premiums. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off.
C. In part a, the change in the EPS came from the stocks sold by TargetCo. Since the original stockholder's of your company have acquired those from TargetCo, your stockholders are better off.
OD. In part a, the change in the EPS came from the stocks sold by TargetCo. However, focusing on EPS alone does not dictate whether shareholders are any better or worse off.
d. What will your price-earnings (P/E) ratio be after the merger (if you pay no premium)? How does this compare to your (P/E) ratio before the merger? How does this compare to TargetCo's pre-merger (P/E) ratio?
which is greater than your P/E ratio before the merger of Your P/E ratio after the merger is less than TargetCo's pre-merger P/E ratio of 8.
Your P/E ratio after the merger is
(Round to two decimal places.)
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