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Synergy between two firms

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Reference no: EM131402314

The shareholders of Northstar Corp. have voted in favour of a buyout offer from Allarco Inc. Information about each firm is given here:

Northstar Corp.Allarco Inc.Price-earning ratio4.8016Shares outstanding72,000150,000Earnings$240,000$720,000

Northstar Corp.'s shareholders will receive two shares of Allarco Inc. stock for every three shares they hold in Northstar Corp.

Note: Please make sure your final answers are accurate to 2 decimal places.

a) What will EPS of Allarco Inc. be after the merger?

EPS = $

b) What is the stock price of Allarco Inc. before the merger?

Stock price = $

c) What will the PE ratio be if the NPV of the acquisition is zero?

PE ratio =

d) What must Allarco Inc. feel is the value of the synergy between these two firms?

Synergy = $

Reference no: EM131402314

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