Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Firm XYZ is considering acquiring Firm ABC. XYZ's shares are currently trading at 25. It has 200,000 shares outstanding and its profits after taxes amount

Firm XYZ is considering acquiring Firm ABC. XYZ's shares are currently trading at 25. It has 200,000 shares outstanding and its profits after taxes amount to 400,000. ABC has 100,000 shares outstanding. Its current market price is 12.50 and its profits after tax 100,000. The merger will be carried out by an equity-for- equity transaction. ABC has agreed to a plan under which XYZ will offer the current market value of ABC's shares. What is the pre-merger earnings per share (EPS) and price-earnings (P/E) ratios of both companies? If ABC's P/E ratio is 8, what is its current market price? What is the exchange ratio? What will XYZ's post-merger EPS be? What must the exchange ratio be for XYZ's that pre- and post-merger EPS to be the same?

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

Financial Planning & Analysis And Performance Management

Authors: Jack Alexander

1st Edition

1119491487, 9781119491484

More Books

Students also viewed these Finance questions

Question

2. Do not get drawn into I wont, you will arguments.

Answered: 1 week ago