Question
The firm A has earnings per share of $5and 3 million shares, and the price of its stock is $30. Firm A is thinking of
The firm A has earnings per share of $5and 3 million shares, and the price of its stock is $30.
Firm A is thinking of buying firm B, which has earnings per share of $3and 2 million shares, and the price of its stock is $15.
Firm A is going to issue new shares to buy firm B.
a/If there is no synergy from this transaction, what is the new earnings per share after the merger if firm A paid the stocks of firm B at $15when using stock-to-stock offer to buy the firm?
b/If firm A pays a premium of 10% when buying stocks of firm B, what will be the new earning per share after the merger?
c/ What will be the P/E ratio after the transaction in a/? How does it compare with the P/E ratios of the two firms before the merger?
d/ If the projected synergy is $3million, how many shares will firm A be ready to issue to buy firm B?
please not use excel.
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