5) Your company has earnings per share of $ 4.34

It has 1.7 million shares outstanding, each of which has a price of $ 52. You are thinking of buying TargetCo, which has earnings per share of $ 1.45, 1.7million sharesoutstanding, and a price per share of $ 24. 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 Target Co, what will your earnings per share be after the merger?

The EPS after the merger is _____________________(Round to the nearest cent.)

b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents 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 any better or worse off?

In this case, your shareholders are neither worse nor better off

In this case, your shareholders are worse off

In this case, your shareholders are better off.

d. What will your price-earnings ratio be after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo's premerger P/E ratio?

The P/E ratio before the merger was ______________________ (Round to two decimal places.)

TargetCo's premerger P/E ratio was ___________________ (Round to two decimal places.)

Buying TargetCo with stock and creating no synergies, the transaction simply ends-up with a company whose P/E ratio is

Below ?

Above ?

Between ?

the P/E ratios of the two companies going into the transaction