Your company has earnings per share of $4.47. It has 1.4 million shares outstanding, each of which has a price of $54. You are thinking of buying TargetCo, which has earnings per share of $1.12, 1.5million shares outstanding, and a price per share of $27. 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 your earnings per share be 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 premium a 15%to buy TargetCo. What will your earnings per share be after the merger?

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

d. Are your shareholders any better or worse off?

A. In this case, your shareholders are worse off.

B. In this case, your shareholders are neither worse nor better off.

C. In this case, your shareholders are better off.

e. What will your price-earnings ratio be 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?

(Select from the bold and italics word)

f. Buying TargetCo with stock and creating no synergies, the transaction simply ends-up with a company whose P/E ratio is (above/between/below) the P/E ratios of the two companies going into the transaction.