Calculate the expected earnings per share

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Question - Graham and Sons wishes to evaluate a proposed merger into the RCN Group. Graham had 2014 earnings of $200,000 has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. RCN had 2014 earnings of $800,000 has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.

a. Calculate the expected earnings per share (EPS) for Graham and Sons for each of the next 5 years (2015 - 2019) without the merger.

b. What would Graham's stockholders earn in each of the next 5 years (2015 - 2019) on each of their Graham shares swapped for RCN shares at a ratio of (1) 0.6 and (2) 0.8 share of RCN for 1 share of Graham?

C. If you were the financial manager for Graham & Sons, which would you recommend part b, (1) and (2)? Explain your answer.

Reference no: EM132972346

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