Question
(25 points) ABC company wants to purchase(or merge with) XYZ company. ABC is trading for $50/share and XYZ for $25/share. both are all-equity companies, each
(25 points) ABC company wants to purchase(or merge with) XYZ company. ABC is trading for $50/share and XYZ for $25/share. both are all-equity companies, each with 1,000,000 shares outstanding. ABC has earnings per share of $1 and XYZ has earnings per share of $2.50.
a) If the two firms merge, with ABC acquiring XYZ for its current market value in an exchange stock, what will be the post-merger earnings per share?
b) Then, suppose ABC pays a 20% premium to buy XYZ. How many shares of ABC will it take to purchase XYZ? Now what will EPS be if ABC pays the 20% premium?
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The Entrepreneur's Growth Startup Handbook 7 Secrets To Venture Funding And Successful Growth
Authors: David N. Feldman
1st Edition
1118445651, 978-1118445655
