10 11 12 13 14 15 16 17 18 19 20 Problem 28-9 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. If you pay 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 an better or worse off? d. What will your price-earnings ratio be after the merger lif you pay no premium)? How does this compare to your PE ratio before the merger? How does this compare to TargetCo s pre-merger P/E ratio Your Company: Earnings per share S4.00 Shares outstanding 1,000,000 Price per share S40.00 Target: S2.00 Earnings per share Shares outstanding 1,000,000 Price per share S25.00 Total consolidated earnings