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Castles in the Sand currently sells at a price - earnings multiple of 1 6 . The firm has 2 million shares outstanding and sells
Castles in the Sand currently sells at a priceearnings multiple of The firm has million shares outstanding and sells at a price per
share of $ Firm Foundation has a PE multiple of has million shares outstanding, and sells at a price per share of $
a If Castles acquires the other firm by exchanging one of its shares for every two of Firm Foundation, what will be the earnings per
share of the merged firm?
Note: Do not round intermediate calculations. Round your answer to decimal places.
b What will be the price per share for Castle?
Note: Do not round intermediate calculations.
c What would be Firm Foundation's value of stock post merger?
Note: Do not round intermediate calculations. Enter your answer in millions.
d What should be the PE of the new firm if the merger has no economic gains?
Note: Do not round intermediate calculations. Round your answer to decimal places.
e Calculate Castles' price per share if the market does not realize that the PE ratio of the merged firm ought to differ from Castles'
premerger ratio.
Note: Do not round intermediate calculations.
f How are the gains from the merger split between shareholders of the two firms if the market is fooled as in part e
Note: Enter your answers in millions.
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