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Question 3 Prodon Company (PRO) is considering the acquisition of Toyata Corporation (TOY) with common stock. Relevant financial information is as follows: PRO RM11,340

 

Question 3 Prodon Company (PRO) is considering the acquisition of Toyata Corporation (TOY) with common stock. Relevant financial information is as follows: PRO RM11,340 3,000 RM2,250 1500 Present earnings (in thousands) Common shares outstanding (in thousands) Earnings per share Price/earnings ratio PRO plans to offer a premium of 40% over the market price of TOY stock. (a) What is the ratio of exchange of stock? How many new shares will be issued by PRO? (9 marks) RM3.78 10 RM1.50 6 (b) What are earnings per share for the surviving company immediately following the merger? (8 marks) (c) If the price/earnings ratio for PRO stays at 10, what is the market price per share of the surviving company? What would happen if the price/earnings ratio drops to 9? (8 marks)

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