Question
OM Ltd is planning to merge with NI Ltd. Under the merger one share in OM Ltd will be exchanged for every 2.5 shares in
OM Ltd is planning to merge with NI Ltd. Under the merger one share in OM Ltd will be exchanged for every 2.5 shares in NI Ltd. The new firm will be called OMNI Ltd.
As a result of the merger a reduction in costs in the amount of $100,000 is projected along with synergistic benefits amounting to $200,000 resulting from the increased distribution network and market share.
As a result of these improvements the P/E of the new firm is projected to be 14X.
Required: Calculate the expected market value of the merged firm and advise OM Ltd. whether they should go ahead with the merger, giving the reason for your recommendation.
| OM Ltd | NI Ltd |
|
|
|
Number of shares outstanding | 300,000 | 125,000 |
Total Earnings | $1,500,000 | $833,750 |
P/E Ratio | 12X | 9X |
Market Price per share | $60 | $60 |
EPS | $5 | $6.67 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started