
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 28, Problem 9P
Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.
- a. If you pay no premium to buy TargetCo, what will your earnings per share be after the merger?
- b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will your earnings per share be after the merger?
- c. What explains the change in earnings per share in part (a)? Are your shareholders any better or worse off?
- d. What will your price-earnings 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 premerger P/E ratio?
Expert Solution & Answer

Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
If a company's annual revenue is $1 million and it has a net profit margin of 15%, what is its net profit?
need a help..??
What is the formula for calculating the present value (PV) of a single lump sum future payment?need help?!
What is the formula for calculating the present value (PV) of a single lump sum future payment?
Chapter 28 Solutions
Corporate Finance
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
Additional Business Textbook Solutions
Find more solutions based on key concepts
Tennessee Tool Works (TTW) is considering investment in five independent projects, Any profitable combination o...
Engineering Economy (17th Edition)
Place the letter of the appropriate accounting cost in Column 2 in the blank next to each decision category in ...
Fundamentals of Cost Accounting
4. JC Manufacturing purchase d inventory for $ 5,300 and al so paid a $260 freight bill. JC Manufacturing retur...
Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
E3-18 Comparing cash and accrual basis accounting and applying the revenue recognition principle
Learning Ob...
Horngren's Accounting (12th Edition)
1-13. Identify a product, either a good or a service, that will take advantage of this opportunity. Although yo...
Business Essentials (12th Edition) (What's New in Intro to Business)
The flowchart for the process at the local car wash. Introduction: Flowchart: A flowchart is a visualrepresenta...
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
Knowledge Booster
Similar questions
- A company’s stock price is $50, and the dividend paid is $2 per share. What is the dividend yield? a) 2%b) 4%c) 5%d) 10%explaination.arrow_forwardYou borrow $200,000 to buy a house at an annual interest rate of 4%. If you repay the loan over 30 years, what will be your monthly mortgage payment? need a help..??arrow_forwardYou invest $5,000 in a mutual fund that charges a 1.5% management fee and a 0.5% administrative fee. If the fund returns 8% over a year, what is your net return?help..??arrow_forward
- If an investor deposits $10,000 into an account earning 6% annual interest, compounded monthly, how much will the investment be worth after 5 years? a) $13,382b) $13,377c) $13,210d) $13,000help!!arrow_forwardYou borrow $200,000 to buy a house at an annual interest rate of 4%. If you repay the loan over 30 years, what will be your monthly mortgage payment?help??arrow_forwardIf an investor deposits $10,000 into an account earning 6% annual interest, compounded monthly, how much will the investment be worth after 5 years? a) $13,382b) $13,377c) $13,210d) $13,000arrow_forward
- If an investment grows at a rate of 8% annually, what is its doubling time according to the Rule of 72? Help me !!arrow_forwardIf an investment grows at a rate of 8% annually, what is its doubling time according to the Rule of 72? a) 6 yearsb) 8 yearsc) 9 yearsd) 12 year explainarrow_forwardA project requires an initial investment of $100,000 and generates annual cash flows of $20,000 for 5 years. If the discount rate is 10%, what is the project's net present value (NPV)?arrow_forward
- If an investment grows at a rate of 8% annually, what is its doubling time according to the Rule of 72? a) 6 yearsb) 8 yearsc) 9 yearsd) 12 year Step by step explarrow_forwardWhat is the formula for the Net Present Value (NPV) of a series of cash flows?arrow_forwardIf an investment grows at a rate of 8% annually, what is its doubling time according to the Rule of 72? a) 6 yearsb) 8 yearsc) 9 yearsd) 12 yearsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education

Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,



Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education