What will be price-earnings ratio after the merger?

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Your company has earnings per share of $4.20. It has 1.3 million shares? outstanding, each of which has a price of $40.40. You are thinking of buying? TargetCo, which has earnings per share of $2.10?, 1.2 million? shares, and a price per share of $24.50. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.

Problem a. If you pay no premium to buy? TargetCo, what will be your earnings per share after the? merger?

Problem b. Suppose you offer an exchange ratio such? that, at current? pre-announcement share prices for both? firms, the offer represents a 15% premium to buy TargetCo. What will be your earnings per share after the? merger?

Problem c. What explains the change in earnings per share in part ?(a?)? Are your shareholders any better or worse? off?

Problem d. What will be your? price-earnings ratio after the merger? (if you pay no? premium)? How does this compare to your? P/E ratio before the? merger? How does this compare to? TargetCo's premerger? P/E ratio?

Reference no: EM132937258

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