Question
As a financial analyst at Bank of America, you are analyzing the impact of the merger and acquisition on a companys financial performance. You collected
As a financial analyst at Bank of America, you are analyzing the impact of the merger and acquisition on a companys financial performance. You collected the following data.
Firm A | Firm T | |||
Price per share | $60.00 | $15.00 | ||
Total earnings | $600.00 | $100.00 | ||
Share outstanding | 200 | 80 | ||
Total Value | $12,000.00 | 1,200.00 |
Suppose Company A will acquire Company T. Company A will offer two new share of A for every five shares of T.
a. If investors are aware that there are no economic gains from the merger, what is the price-earnings ratio of A's stock after the merger? (sample answer: 27.50) b. Now suppose that the merger really does increase the value of the combined firms by $1155, what is the price-earnings ratio of A's stock after the merger? (sample answer: 27.50) c. Now suppose that the merger really does increase the value of the combined firms by $1155, What is the final merger premium in dollar does Company A pay to Company T (sample answer: $450.50) d. Now suppose that the merger really does increase the value of the combined firms by $1155, What is the initial merger premium promised in dollar does Company A pay to Company T (sample answer: $450.50)
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