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Consider the following premerger information about Firm A and Firm B: Firm A Firm B Tot

Consider the following premerger information about Firm A and Firm B: Firm A Firm B Tot

Consider the following premerger information about Firm A and Firm B:

 

Firm A

Firm B

Total earnings

$2,100

$800

Shares outstanding

900

200

Price per share

$27

$31

Assume that Firm A acquires Firm B via an exchange of stock at a price of $33 for each share of B's stock. Both A and B have no debt outstanding.

 

A. What will the earnings per share, EPS, of Firm A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

B. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the priceAc€?oearnings ratio does not change)? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

C. What will the priceAc€?oearnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

D. If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

E. What will the priceAc€?oearnings ratio be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

F. What does your answer for the share price tell you about the amount A bid for B? Was it too high or too low?

Abhinav 03-Dec-2019

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