Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

EPS and postmerger price Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by

EPS and postmerger price Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same prcie/earnings (P/E) multiple after the merger as before merging.

Item Henry Company Mayer Services

Earnings available for common stock $225,000 $50,000

Number of shares of common stock outstanding 90,000 15,000

Market price per share $45 $50

a) Calculate the ratio of exchange in market price.

b) Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company.

c) Calculate the price/earnings (P/E) ratio to be used to purchase Mayer Services.

d) Calculate the postmerger earnings per share (EPS) for Henry Company.

d) Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Asian Finance Financial Markets And Sovereign Wealth Funds

Authors: David Lee, Greg N. Gregoriou

1st Edition

0128009829, 978-0128009826

More Books

Students also viewed these Finance questions