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4.1. Your company has earnings per share of $5. It has 1 million shares outstanding, each of which has a price of $50. You are thinking of buying TargetCo, which has earnings per share of $3,1 million shares outstanding, and a price per share of $30. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. a. If you pay no premium to buy TargetCo, what will be your earnings per share after the merger? (6pts) b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will be your earnings per share after the merger? (3pts) c. What will be your price-earnings ratio after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo's premerger P/E ratio (7pts) d. If this merger expects a synergy value of $5 million, what the most number of share your company can issue for the transaction to still be a good deal? (6pts) a) # of new shares you have to issue total shares after merger 600000 1600000 Total earnings from TargetCo Total earnings from Aquirer Total earnings after merger 3000000 5000000 8000000 EPS after merger 5 b) # of new shares you have to issue total shares after merger 720000 1720000 EPS after merger 4.651162791 c) Value of the aquirer pre-merger Value of the target pre-merger Total equity value after merger 50000000 30000000 80000000 50 Stock price after merger P/E ratio after merger P/E ratio of aquirer pre-merger P/E ratio of target pre-merger 10 10 10 5000000 d) Synergy Value for the Merger Total Value of TargetCo Maximum Exchange Ratio Maximum number of new shares issued 4.1. Your company has earnings per share of $5. It has 1 million shares outstanding, each of which has a price of $50. You are thinking of buying TargetCo, which has earnings per share of $3,1 million shares outstanding, and a price per share of $30. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. a. If you pay no premium to buy TargetCo, what will be your earnings per share after the merger? (6pts) b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will be your earnings per share after the merger? (3pts) c. What will be your price-earnings ratio after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo's premerger P/E ratio (7pts) d. If this merger expects a synergy value of $5 million, what the most number of share your company can issue for the transaction to still be a good deal? (6pts) a) # of new shares you have to issue total shares after merger 600000 1600000 Total earnings from TargetCo Total earnings from Aquirer Total earnings after merger 3000000 5000000 8000000 EPS after merger 5 b) # of new shares you have to issue total shares after merger 720000 1720000 EPS after merger 4.651162791 c) Value of the aquirer pre-merger Value of the target pre-merger Total equity value after merger 50000000 30000000 80000000 50 Stock price after merger P/E ratio after merger P/E ratio of aquirer pre-merger P/E ratio of target pre-merger 10 10 10 5000000 d) Synergy Value for the Merger Total Value of TargetCo Maximum Exchange Ratio Maximum number of new shares issued