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What will eps of butter be after the merger

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Reference no: EM133496088

EPS, PE, and Mergers The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation.

Information about each firm is given here:

Bread butter

Price-earnings ratio 7.2 14.4

Share outstanding 73,000 146,000

Earnings $210,000 $630,000

Bread's shareholders will receive one share of Butter stock for every three shares they hold in Bread.

1. What will the EPS of Butter be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?

2. What must Butter feel is the value of the synergy between these two firms?

Explain how your answer can be reconciled with the decision to go ahead with the takeover.

Reference no: EM133496088

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