2. Its now the beginning of year 2021. ABC Corp. has expected EPS of $3.5 for year 2021, its stock price is $65, and it has two million shares outstanding. It plans to buy XYZ Corp. whose 2021 expected earnings are $2/share, its stock price is $30 and it has two million shares outstanding. ABC plans to improve XYZ's performance such that subsequently XYZs Equity/Earnings multiple will rise to 22. The earnings (or net income) of year 2021 will remain unchanged. The acquisition will be done by exchanging newly-issued shares of ABC for XYZ shares. Assume that the market knows that and trusts ABC's plans regarding XYZ, and the information is reflected in the price after the announcement.

1. What is the highest exchange ratio that ABC can offer XYZ such that ABC's stock price will not decline after the acquisition?

Answer: ............ABC shares for one XYZ share.

b. What is the highest exchange ratio that ABC can offer XYZ such that the acquisition is not dilutive to ABC's EPS for year 2001?

Answer:........... ABC shares for one XYZ share.