Consider the following premerger information about Firm A and Firm B:
Firm A Firm B Total earnings $ 2,500 $ 1,000 Shares outstanding 900 200 Price per share $ 23 $ 27
Assume that Firm A acquires Firm B via an exchange of stock at a price of $29 for each share of B's stock. Both A and B have no debt outstanding.
a. What will the earnings per share (EPS) of Firm A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
EPS $
b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the priceâearnings ratio does not change)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price per share $
c. What will the priceâearnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Priceâearnings ratio times
d-1 If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price per share $
d-2 What will the priceâearnings ratio be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Priceâearnings ratio times
| Consider the following premerger information about Firm A and Firm B: |
| Firm A | Firm B | |||||
| Total earnings | $ | 2,500 | $ | 1,000 | ||
| Shares outstanding | 900 | 200 | ||||
| Price per share | $ | 23 | $ | 27 | ||
| Assume that Firm A acquires Firm B via an exchange of stock at a price of $29 for each share of B's stock. Both A and B have no debt outstanding. |
| a. | What will the earnings per share (EPS) of Firm A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| EPS | $ |
| b. | What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the priceâearnings ratio does not change)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price per share | $ |
| c. | What will the priceâearnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Priceâearnings ratio | times |
| d-1 | If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Price per share | $ |
| d-2 | What will the priceâearnings ratio be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Priceâearnings ratio | times |
Related questions
| Makers Corp. had additions to retained earnings for the year just ended of $194,000. The firm paid out $184,000 in cash dividends, and it has ending total equity of $4.89 million. The company currently has 120,000 shares of common stock outstanding. |
| What are earnings per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Earnings | $ per share |
| What are dividends per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Dividends | $ per share |
| What is the book value per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Book value | $ per share |
| If the stock currently sells for $62 per share, what is the market-to-book ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Market-to-book ratio | times |
| What is the price-earnings ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16.) |
| Price-earnings ratio | times |
| If the company had sales of $3.96 million, what is the price-sales ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Price-sales ratio | times |
| Makers Corp. had additions to retained earnings for the year just ended of $268,000. The firm paid out $188,000 in cash dividends, and it has ending total equity of $4.93 million. The company currently has 160,000 shares of common stock outstanding. |
| What are earnings per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Earnings | $ per share |
| What are dividends per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Dividends | $ per share |
| What is the book value per share? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Book value | $ per share |
| If the stock currently sells for $81 per share, what is the market-to-book ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| Market-to-book ratio | times |
| What is the price-earnings ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16.) |
| Price-earnings ratio | times |
| If the company had sales of $5.28 million, what is the price-sales ratio? |
