You are given information about two different companies prior to the merger Company X and Company Y The total profits of Company X and Company Y are $3,150 and $1,000 respectively The Company X has 1,500 shares outstanding whereas Company Y has just 300 shares outstanding The price per share for Company X and Y is $43 and $47 respectively Assume thatCompany X acquires Company Y via an exchange of stock at a price of $49 for each share of Ysstock Both Company X and Y do not have debt outstanding Calculate the EPS of Company X after the merger If the market incorrectly analyzes this reported profits growth (meaning, the Price earnings ratio does not change), what will Company Xs price per share be after the merger If the market correctly analyzes the transaction, what will be the Price earnings ratio of the post merger company If there are no synergy gains, what will be the share prices of X after the merger What will be the Price earnings ratio What does your answer for the share price tell you about the amount X bid for Y Was it too high or too low Explain with justification

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Posted on Sep 20, 2024

You are given information about two different companies prior to the merger Company X and Company Y. The total profits of Company X and Company

You are given information about two different companies prior to the merger Company X and Company Y. The total profits of Company X and Company Y are $3,150 and $1,000 respectively. The Company X has 1,500 shares outstanding whereas Company Y has just 300 shares outstanding. The price per share for Company X and Y is $43 and $47 respectively. Assume thatCompany X acquires Company Y via an exchange of stock at a price of $49 for each share of Ysstock. Both Company X and Y do not have debt outstanding.

Calculate the EPS of Company X after the merger?
If the market incorrectly analyzes this reported profits growth (meaning, the

Price/earnings ratio does not change), what will Company Xs price per share be after

the merger?
If the market correctly analyzes the transaction, what will be the Price/earnings ratio of

the post-merger company?

If there are no synergy gains, what will be the share prices of X after the merger? What will be the Price/earnings ratio? What does your answer for the share price tell you about the amount X bid for Y? Was it too high or too low? Explain with justification.