Fastnar is a large European industrial supplies company with a market capitalization of 17 billion. During the COVID-19 pandemic, Fastnar's supply chain experienced significant stress, leading to the loss of several large customers.

Fastnar's board has made the decision to acquire 100% of the outstanding stock of Luxor, a transportation company. Pre-announcement, Luxor's stock was trading at 260.

The pre-acquisition income statements (in millions) for the two companies are shown here:

	Fastnar	Luxor
Revenues	28,695	8,964
Cost of goods sold	20,660	6,006
Operating expenses	2,583	807
EBITDA	5,452	2,151
Depreciation & amortization	1,121	1,671
EBIT	4,331	480
Interest expense	1,100	112
Tax	679	55
Net income	2,553	313
Shares outstanding (millions)	1,000	20
EPS	2.55	15.66

Additional details:

• A new issue of 30-year bonds yielding 3% will finance the purchase price of 6.26 billion.
• Synergies in the form of cost savings of 480 million per year are expected from this transaction.
• Additional depreciation due to the fair market value adjustment of Luxor's fixed assets will be 35 million per year.
• Excluding the items just mentioned, in the first year after the acquisition, the pro forma income statements are expected to be the same as the pre-acquisition income statements.
• Fastnar's tax rate is 21%.
• Analysts have identified the following comparables for Luxor and collected their P/E ratios based on TTM EPS as shown here:

Comparable	P/E
A	16
B	19
C	22
D	15

1. Relative to the pre-announcement price of Luxor, the acquisition premium paid by Fastnar isclosestto:

A.12%.

B.14%.

C.20%.

2. Using the average P/E of the comparables, the acquisition price premium isclosestto:

A.11%.

B.12%.

C.14%.

3. The consolidated EPS of Fastnar in the first year after acquisition isclosestto:

A.2.33.

B.2.87.

C.3.07.

4. Should an analyst consider this transaction to be material?

A.No, because of the size.

B. Yes, because of the size.

C.No, because of the fit.