What will the earnings per share

Reference no: EM132187688

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

	Firm A	Firm B
Total earnings	$2,300	$700
Shares outstanding	1,100	300
Price per share	$41	$45

Assume that Firm A acquires Firm B via an exchange of stock at a price of $47 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 post-merger 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. What will the price-earnings ratio be?

d-3. What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low?

Reference no: EM132187688

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