Essex Industries is considering the acquisition of the Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001.

	Essex	Twinsburg
Sales	$500 million	$50 million
Net income	$100 million	$15 million
Common shares outstanding	20 million	5 million
Earnings per share	$5.00	$3.00
Dividends per share	$1.00	$0.50
Common stock market price	$80	$60
Price/earnings ratio	16	20

1. Calculate the exchange ratio if Essex offers the Twinsburg stockholders a 20% premium over Twinsburgs current market price.

2. Calculate the post-merger earnings per share if the exchange ratio is 0.95 shares of Essex for each share of Twinsburg. (Assume total post-merger earnings are $115 million.)

3. What is Essexs post-merger share price if the post-merger price/earnings ratio is 17, and the exchange ratio is 0.8? Assume total post-merger earnings are $115 million.