Acquiring Company is considering the acquisition of Target Company in a stock for stock transaction in which Target Company would receive $50.00 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 $60.00 $40.00

Using the information provided above on these two firms and showing your work, calculate the following:

1) What is the share exchange ratio?

2) How many new shares will be issued by Acquiring Company?

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

4) What is the post-merger share price of the combined company?

5) If the purchase is using 100% cash and all the cash is borrowed at an annual rate of 8%, what is post-merger EPS of the combined company, assuming the tax rate is 40%?