Calculate the expected market value of the merged firm

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Question - Whinn Ltd is planning to merge with All Ltd.  Under the merger one share in Whinn Ltd will be exchanged for every 2 shares in All Ltd.  The new firm will be called Whinnall Ltd.  As a result of the merger a reduction in costs in the amount of $95,000 is projected along with synergistic benefits resulting from the increased distribution network and market share.  As a result of these improvements the P/E of the new firm is projected to be 35X.


Whinn Ltd

All Ltd

Total Earnings

$1,050,000

$525,000

Number of shares outstanding

250,000

150,000

EPS

$4.20

$3.50

P/E Ratio

20X

24X

Market Price per share

$84

$84

Required - Calculate the expected market value of the merged firm and advise Whinn Ltd. whether they should go ahead with the merger, giving the reason for your recommendation.

Reference no: EM133159451

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