Question
Liquid Communications is considering acquiring a small telecommunications company, PowerCom using common stock. The following information on the 2 companies is provided. liquid communications powercom
Liquid Communications is considering acquiring a small telecommunications company, PowerCom using common stock. The following information on the 2 companies is provided.
| liquid communications | powercom | |
| present earnings | 4 000 000 | 1 000 000 |
| common stock stock | 2 000 000 | 800 000 |
| earnings per share | 2 | 1.25 |
| price earnings ratio | 12 | 8 |
Liquid Communications plans to offer a premium of 20% over the market price of PowerCom stock.
What will be the market price per share of the surviving company if the price earnings ratio for Liquid Communications (i) Remains at 12? (ii) Falls to 11?
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The Economics Of Money Banking And Financial Markets
Authors: Frederic S. Mishkin
9th Edition
0321598903, 978-0321598905
