Your company has earnings per share of $4.10. It has 1.1 million shares? outstanding, each of which has a price of $40.60. You are thinking of buying? TargetCo, which has earnings per share of $2.05?, 1.2 million? shares, and a price per share of $24.20. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.

a. If you pay no premium to buy? TargetCo, what will be your earnings per share after the? merger?

b. Suppose you offer an exchange ratio such? that, at current? pre-announcement share prices for both? firms, the offer represents a 15% premium to buy TargetCo. What will be your earnings per share after the? merger?

c. What explains the change in earnings per share in part?(a?)?

A.) Earnings per share always decline if the firm issues new shares to pay for a merger

B.) Earnings per share declines because TargetCo has a higher price-earnings ratio than your firm

C.) Earnings per share declines because you are overpaying for TargetCo

Are your shareholders any better or worse? off?

A.) In this? case, your shareholders are better off

B.) In this? case, your shareholders are worse off

C.) In this? case, your shareholders are neither worse nor better off

d. What will be your? price-earnings ratio after the merger? (if you pay no? premium)? How does this compare to your? P/E ratio before the? merger? How does this compare to? TargetCo's premerger? P/E ratio?