What is the net cost of the takeover to progressive

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Reference no: EM132053767

Progressive Ltd is determined to increase its earnings per share from $1 to $1.33, so it acquires Lo-Gear. The following facts are provided:

Item Progressive Lo-Gear Merged company

Earnings per share ($) 1.00 1.25 1.33

Price per share ($) 20.00 12.50 ?

Price-earnings ratio 20.00 10.00 ?

Number of shares 100000 200000 ?

Total earnings ($) 100000 250000 ?

Total market value ($) 2 000000 2500000 ?

There are no economic benefits from combining the two companies. In exchange for Lo-Gear's shares, Progressive issues just enough of its own shares to ensure its $1.33 earnings-per-share objective.

Please provide answers with explanation.

1. Calculate the number of shares of the merged company.

2. How many shares of Progressive are exchanged for each share of Lo-Gear?

3. What is the net cost of the takeover to Progressive?

Reference no: EM132053767

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