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What will Firm A price per share

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Reference no: EM132944019

Question - Consider the following premerger information about Firm A and Firm B:

 

Firm A

Firm B

Total earnings

$2,400

$1,200

Shares outstanding

1,000

250

Price per share

$35

$39

Assume that Firm A acquires Firm B via an exchange of stock at a price of $41 for each share of B's stock. Both A and B have no debt outstanding.

a. What will the earnings per share, EPS, of Firm A be after the merger?

b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)?

c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction?

d-1. If there are no synergy gains, what will the share price of A be after the merger?

d-2. If there are no synergy gains, what will the price-earnings ratio be?

Reference no: EM132944019

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