Reference no: EM131601650

Problem - EPS and post merger price Data for Henry Company and Myer Service are given in the following table. Henry Company is considering merging with Myer by swapping 1.25 shares of its stock for each share of Myer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple as before.

Item                                                                     Henry Company        Mayer Services

Earning available for common stock                         $225,000                  $50,000

Number of shares of common stock outstanding        90,000                     15,000

Market price per share                                            $45                          $50

a) Calculate the ratio of exchange in market price.

b) Calculate the earning per share (EPS) and price/earning (P/E) ratio for each company.

c) Calculate the price/earnings (P/E) ratio used to purchase Mayer Service.

d) Calculate the post merger earning per share (EPS) for Henry Company.

e) Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.

Henry Company is as follows:

                                                                     December31

                                                       2002                              2003

Common Stock                                 $600,000                      $600,000

Additional paid-in capital                    250,000                        250,000

Retained earnings                             170,000                         370,000

Net income for the year                     120,000                        240,000

Harry's return on common stockholder's equity, rounded to the nearest percentage point for 2003 is?