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 4000 000 1 000 000 Common Stock Outstanding 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. 2.1 What is the exchange ratio of the stocks? (3) 2.2 How many new shares should Liquid Communications issue to acquire PowerCom? (2) 2.3 What is the earnings per share for the surviving company immediately after the merger? (5) 2.4 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? (5) 2.5 Advise PowerCom board of directors on anti-takeover strategies it can implement to frustrate Liquid Communications out of its plans.