Question
Big Ltd is planning to merge with Deal Ltd. Under the merger one share in Big Ltd will be exchanged for every 2.5 shares in
Big Ltd is planning to merge with Deal Ltd. Under the merger one share in Big Ltd will be exchanged for every 2.5 shares in Deal Ltd. The new firm will be called Bigdeal Ltd.
As a result of the merger a reduction in costs in the amount of $150,000 is projected along with synergistic benefits resulting from the increased distribution network and market share.
As a result of these improvements the P/E of the new firm is projected to be 15X.
Required: Calculate the expected market value of the merged firm and advise Big Ltd. whether they should go ahead with the merger, giving the reason for your recommendation.
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| Big Ltd | Deal Ltd |
| Total Earnings | $1,500,000 | $833,750 |
| Number of shares outstanding | 300,000 | 125,000 |
| EPS | $5 | $6.67 |
| P/E Ratio | 12X | 9X |
| Market Price per share | $60 | $60 |
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Enter calculation and answers here:
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Investment The Study Of An Economic Aggregate
Authors: Philip J. Lund
1st Edition
0444851380,1483256901
