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 | $70.00 | $10.00 | ||
| Total earnings | $600.00 | $100.00 | ||
| Share outstanding | 200 | 80 | ||
| Total Value | $14,000.00 | $ 800.00 | ||
Suppose Company A will acquire Company T. Company A will offer three new shares 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) Now suppose that the merger really does increase the value of the combined firm by $3500, please answer part b, c, and d b. what is the price-earnings ratio of A's stock after the merger? (Sample answer: 27.50) c. what is the final merger premium in dollar does Company A pay to Company T (sample answer: $450.50) d. what is the initial merger premium promised in dollar does Company A pay to Company T (sample answer: $450.50)
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Multinational Financial Management
Authors: Shapiro A.C.
9th International Edition
8126536934, 9788126536931
