httpsnewconnectmheducatx Welcome to PeterscLoginAmerican PuA

https//newconnect.mheducatx Welcome to PeterscLogin-American PuAMU Heath Fest Check my work mode: This shows whet is correct or incorrect for the work you have completed Consider the following premerger information about Firm A and Firm B Shares outstanding Price per share s 2,000 $ 1,00 1,10025 39% 43 Assume that Firm A acquires Firm B via an exchange of stock at a price of $45 for each share of B\'s stock Both A and B have no debr outstanding a. What wil the earnings per share, EPS, of Firm A be after the merger? (Do not round intermediate caleulations and round your answer to 2 decimal places, e.g.. 32.16.) EPS 224 b. What will Firm A\'s price per share be after the merger it the market incorrectly analyzes this reported earnings growth that is,the Price per share 402 o Price-earnings 1675 O mes price-earnings ratio does not change)? (Do not round intermediate calculetions 32%; and round your answer to 2 decimal places, .g c. What will the price-earnings ratio of the postmerper firm be if the market correctly analyzes the intermediete calculations and round your answer to 2 decimal places,eg. 3216.) transaction? (Do not round d-1. if there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculetions and round your answer to 2 decimal places, e.g. 32.16.) Price per share 39 o d-2/t there are no synergy gans. what wil the price-earnings ratio bepo not round ?ntermediate calculations and round your onswer to 2 decimel plsces, .g.. 32.16 Price-earnings 658 O times

Solution

a) Cost of acquisition = 250 shares x $45 $11,250.00 # of Shares offered = $11,250 / $39 288.46 Shares EPS after Merger = Combined Earnings/ # of new shares outstanding EPS after Merger = ($2000+ $1000)/(1100 + 288.46)shares $2.16 Per share b) Original EPS = $2000/1100 shares $1.82 Original P/E Ratio = $39/$1.82 21.45 times Price per share = 21.45 x $2.16 $46.35 Per share c) Price/Earning Ratio =(1100 x $39)+(250 x 43)/(2000 +1000) 17.88 times d) Price=combine the market value of the two existing companies / # of shares outstanding in merger company 1) Price per share =(1100 x $39)+(250 x 43)/(1100+288.46) shares $38.64 per share 2) P/E Ratio = $38.64/$2.16 17.88 times