There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just
Question:
There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.67 earnings per share objective.
a.Complete the below table for the merged firm.The below table is correct.
World WheelrimMerged
Enterprises& AxleFirm
Earnings per share:$2.00$ 2.50$2.67
Price per share:$40$ 25$34.33
Price-earnings ratio:201012.9
# of shares:100,000200,000262,172
Total Earnings: $200,000500,000700,000
Total Market Value:4,000,0005,000,0009,000,000
b.How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle?Below ratio correct.
Exchange ratio0.81
c.What is the cost of the merger to World Enterprises?(Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest whole number.)
Cost of merger = $
d.What is the change in the total market value of the World Enterprises shares that were outstanding before the merger?(A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.)
Change in share value= $
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers