Question
Companies A and B are valued as follows: A B # of shares 2,000 1,000 Earnings per share $ 20 $ 10 Share price $
Companies A and B are valued as follows:
| A | B | |
| # of shares | 2,000 | 1,000 |
| Earnings per share | $ 20 | $ 10 |
| Share price | $ 100 | $ 75 |
Given that the price-earnings ratio of Company B is 50% larger than the price-earnings ratio of Company A, Company A has decided to pay a premium of 50% to acquire the shares of Company B. Is Company A making a good investment decision? Please justify your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Governance And The Market For Corporate Control
Authors: John L. Teall
1st Edition
0415397863,1317834704
