Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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

Handbook Of Research Methods And Applications In Empirical Finance

Authors: Adrian R. Bell, Chris Brooks, Marcel Prokopczuk

1st Edition

1782540172, 978-1782540175

More Books

Students also viewed these Finance questions