Your company has earnings per share of $4. It has 1 million sharesoutstanding, each of which has a price of $42. You are thinking of buyingTargetCo, which has earnings of $3 pershare, 1 million sharesoutstanding, and a price per share of $21. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offered an exchange ratio suchthat, at currentpre-announcement share prices for bothfirms, the offer represents a 20% premium to buy TargetCo. However, the actual premium that your company will pay for TargetCo when it completes the transaction will not be 20%, 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 ofmoney).

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

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

c. What is the price of TargetCo immediately after theannouncement?

d. What is the actual premium your company willpay?