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Part $1$

Your company has earnings per share of $ $4.$ It has $1$ million shares$$ outstanding, each of which has a price of $ $41.$ You are thinking of buying$$ TargetCo, which has earnings of $ $2$ per$$ share, $1$ million shares$$ outstanding, and a price per share of $ $22.$ You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offered an exchange ratio such$$ that, at current$$ pre$-$announcement share prices for both$$ firms, the offer represents a $25\%$ premium to buy TargetCo. $$ However, the actual premium that your company will pay for TargetCo when it completes the transaction will not be $25\%,$ because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo without any synergies. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover$($ignore time value of$$ money$).$

a$.$ What is the price per share of the combined corporation immediately after the merger is$$ completed?

b$.$ What is the price of your company immediately after the$$ announcement?

c$.$ What is the price of TargetCo immediately after the$$ announcement?

d$.$ What is the actual premium your company will$$ pay?