Finance-share calculations

Assignment Help Finance Basics

Reference no: EM1343957

ABC is evaluating a proposed merger into DEF. ABC had 2009 earnings of $200,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. DEF had 2009 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 ABC for each of the next five years (2010-2014) without the merger.

(b) What would ABC's stockholders earn in each of the next 5 years (2010-2014) on each of their ABC shares swapped for DEF shares a a ratio of (i) 0.6 shares and (ii) 0.8 shares of DEF for one share of ABC?

(c) Graph the pre-merger and post-merger EPS figures developed in parts (a) and (b) with the year on the x axis and the EPS on the y axis.

(d) If you were the financial manager for ABC, which would you recommend from part (b): (i) or (ii)? Explain your answer.

Reference no: EM1343957

Questions Cloud

Evaluate the yield to maturity on the bond : Evaluate the Yield to Maturity on the bond - this is a time value of money problem, so you need to use your financial calculator or Excel.

Differences among horizontal-vertical-conglomerate mergers : Write down the differences among horizontal, vertical, and conglomerate mergers.

How much life insurance do you need : Describe which health care plan you would choose. Looking at eHealth Insurance, enter your information and then pick three companies to compare

Effective address-addressing mode of instruction is direct : Evaluate the effective address if the addressing mode of the instruction is (a) direct; (b) immediate; (c) relative; (d) register indirect.

Finance-share calculations : Compute the expected earnings per share (EPS) for ABC for each of the next five years (2010-2014) without the merger. What would ABC's stockholders earn in each of the next 5 years (2010-2014) on each of their ABC shares swapped for DEF shares a a r..

Calculate the standard deviation of returns : You are thinking an investment in either individual stocks or a portfolio of stocks. The two (2) stocks you are researching, stocks A & B, have the following historical returns;

Explaining instruction format of operation code field : Operation code field, a mode field, to specify one of seven addressing modes, a register address field to specify one of 60 processor registers, and memory address. Specify instruction format and number of bits in each field if the instruction ..

What is the accounts receivable balance : The Inventory Conversion period is 40 days, the Accounts Payable Balance is $2,000, and the Operating Cycle is 60 days and What is the Accounts Receivable balance?

Calculate after-tax cost of debt financing : Last year Wei Guan corporation had $350 million of sales, and it had $270 million of fixed assets that were used at 65 percent of capacity. In millions, by how much could Wei Guan's sales raise.

User Account

All Pages