Question
Suppose Todd Trucking Company's stock is trading for $50 a share while Hamilton Company's stock goes for $25 a share. The EPS of Todd is
Suppose Todd Trucking Company's stock is trading for $50 a share while Hamilton Company's stock goes for $25 a share. The EPS of Todd is $1 while the EPS of Hamilton is $2.50. Neither company has debt in its current capital structure. Both companies have one million shares of stock outstanding. a. If Todd can acquire Hamilton for stock in an exchange based on market value, what should be the postmerger EPS? b. Suppose Todd pays a premium of 20% in excess of Hamilton's current market value. How many shares of Todd must be given to Hamilton's shareholders for each of their shares? c. Based on your results in b, what will Todd's EPS be after it acquires Hamilton? d. If Hamilton were to acquire Todd by offering a 20% premium in excess of Todd's current market price, how many shares of stock would Hamilton have to offer, and what would be the effect on Hamilton's EPS?
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