Consider two corporations: Mature Canada Enterprises $($MCE$)$ and Growth Canada Enterprises $($GCE$)$

Both have earnings of $$5$ per share and $1$ million shares outstanding

MCE is a mature company with few growth opportunities and is priced at $$60$ per share.

GCE is a young company with much more lucrative growth opportunities. Consequently, it has a

higher value: Although it has the same number of shares outstanding, its stock price is $$100$ per

share.

GCE is acquiring MCE as a stock$-$only transaction. Assume there are no synergies and GCE

doesn't pay a premium.

 

Required:

a$)$ Calculate the value of GCE after the transaction

b$)$ How many shares in GCE must they offer to the MCE shareholders if they want the GCE price to

still be $$100$ after the transaction?

c$)$ What is the new EPS of GCE after the transaction? Has the EPS gone up$,$ down or stayed the

same? Does this make sense?

d$)$ Compare the PE of MCE and GCE before and after the transaction.

Solve part d$)$ please.