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Consider the following premerger information about Firm A and Firm B: Total earnings Shares outstanding Price per share Firm A $ 1,900 900 $ 37
Consider the following premerger information about Firm A and Firm B: Total earnings Shares outstanding Price per share Firm A $ 1,900 900 $ 37 Firm B $ 500 250 $ 41 Assume that Firm A acquires Firm B via an exchange of stock at a price of $43 for each share of B's stock. Both A and B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EPS b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price per share c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price-earnings ratio times d-1 If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price per share $ d-2 What will the price-earnings ratio be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price-earnings ratio 18.15 times d-3 What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low? Too high Too low
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