Acquiring Company is considering the acquisition of Target Company in a stock for stock transaction in which Target Company would receive $60.00 for each share of its common stock. The Acquiring Company does not expect any change in its price/earnings multiple after the merger.

Acquiring Co., Target Co.

Earnings available for common stock $150,000, $30,000

Number of shares of common stock outstanding 60,000, 20,000

Market price per share $80.00, $40.00

What is the exchange ratio?

What is the number of new shares that the acquirer needs to issue?

What is the post-merger EPS of the combined company?

Is the merger accretive or dilutive?

What is the post-merger share price of the Acquiring company?

If the deal is changed to 50% stock and 50% cash payment, assuming that the acquirer issues debt with 8% interest for the cash payment and the tax rate is 40%, what is the post-merger EPS then?