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What is the gain from the acquisition

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Reference no: EM132589647

As treasurer of LPI, you are investigating the possible acquisition of PSI.

The following data is available:

LPI PSI

Earnings per share. $5.00 $1.50

Dividend per share. $3.00 $.80

Number of shares 1,000,000 600,000

Stock Price $90.00 $20.00

The estimated and expected steady growth for PSI's earnings and dividends is 6 percent. With new management, the growth rate is expected to be 8 percent per year without any additional capital investment required.

Answer the following:

a. What is the gain from the acquisition?

b. What is the cost of the acquisition if LPI pays $25.00 in cash for each share of PSI?

c. What is the cost of the acquisition if LPI offers one share of LPI for three shares of PSI?

Reference no: EM132589647

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