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Exercise No. Mod 7-1 Acquirer purchases 100% of target by issuing additional stock to purchase target shares No premium is offered above target's current share

Exercise No. Mod 7-1

Acquirer purchases 100% of target by issuing additional stock to purchase target shares

No premium is offered above target's current share price

Given:

Acquirer Target

Share Price P20 P40

P/E ratio 8x 5x

EPS Next Year P3 P6

Shares Outstanding 6000 2000

Requirement:

1.Compute the accretion/dilution per share

2.Compute the accretion/dilution in %

3.What is the result of the deal?

4.Is target company expensive to purchase? Why?

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