16. Mingsheng Incorporation (MI) is a younger and yet cash-rich company with relatively high P/E ratio compared to its peers in the same industry. Its CEO, Donnie Chen, has recently spotted a target company to acquire to boost the company value. As a more eatablished company, the P/E ratio of Ml's target, Jiang Xi Incorporation (JXI), is lower than that of MI. The board of directors of MI expresses enthusiasm about the move (to acquire JXI) but perhaps for the wrong reasons. The details of two companies are given as follows. Mingsheng (MD) Jiang Xi (JXI) Share price No. of shares Earnings EPS PIE $100 20 mil $100 mil $5 $100 30 mil $300 mil $10 10 20 Required Ignore operating synergy and leverage risk involved in the deal: A. Show (with numbers/calculations) why JXi's board of directors may be enthusiastic about this M&A activity in the context of bootstrapping game. (4 Marks) B. On behalf of Donnie Chen, provide an illustration (with numbers and calculations) that would provide the more realistic picture to the board of directors regarding the point shown in question A above. Assume that the stock market is efficient. (7 Marks) 16. Mingsheng Incorporation (MI) is a younger and yet cash-rich company with relatively high P/E ratio compared to its peers in the same industry. Its CEO, Donnie Chen, has recently spotted a target company to acquire to boost the company value. As a more eatablished company, the P/E ratio of Ml's target, Jiang Xi Incorporation (JXI), is lower than that of MI. The board of directors of MI expresses enthusiasm about the move (to acquire JXI) but perhaps for the wrong reasons. The details of two companies are given as follows. Mingsheng (MD) Jiang Xi (JXI) Share price No. of shares Earnings EPS PIE $100 20 mil $100 mil $5 $100 30 mil $300 mil $10 10 20 Required Ignore operating synergy and leverage risk involved in the deal: A. Show (with numbers/calculations) why JXi's board of directors may be enthusiastic about this M&A activity in the context of bootstrapping game. (4 Marks) B. On behalf of Donnie Chen, provide an illustration (with numbers and calculations) that would provide the more realistic picture to the board of directors regarding the point shown in question A above. Assume that the stock market is efficient. (7 Marks)