CMD Corporation is interested in acquiring LTC Company by swapping 0.4 share of its stock for each

Question:

CMD Corporation is interested in acquiring LTC Company by swapping 0.4 share of its stock for each share of LTC stock. Certain financial data on these companies are given in the following table.

Item CMD Corporation LTC Co.

Earnings available for common stock............US$200,000...............US$50,000

Number of shares of common stock outstanding......50,000.....................20,000

Earnings per share (EPS)...............................US$ 4.00.................US$ 2.50

Market price per share.................................US$ 50.00...............US$ 15.00

Price/earnings (P/E) ratio....................................12.5...........................6

CMD has sufficient authorized but unissued shares to carry out the proposed merger.

a. How many new shares of stock will CMD have to issue to make the proposed merger?

b. If the earnings for each firm remain unchanged, what will the post merger earnings per share be?

c. How much, effectively, has been earned on behalf of each of the original shares of LTC stock?

d. How much, effectively, has been earned on behalf of each of the original shares of CMD Corporation's stock?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...