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What is the maximum exchange ratio

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Question - Carl Ltd. & Donald Ltd. are contemplating a merger deal in which Carl Ltd. will acquire Donald Ltd. The relevant information about the firms are given as follows:

 

C Ltd.

D Ltd.

Total Earnings (E) (in millions)

$86

$40

Number of outstanding shares (S) (in millions)

30

13

Earnings per share (EPS)

3.8

4.143

Price earnings ratio (P/E)

7

8

Market Price per share (P)

47.4

16

Required -

i. What is the maximum exchange ratio acceptable to the shareholders of Carl Ltd., if the P/E ratio of the combined firm is 6?

ii. What is the minimum exchange ratio acceptable to the shareholders of Donald Ltd., if the P/E ratio of the combined firm is 8?

Reference no: EM132866102

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