What would be one estimate of appropriate premium

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Your company has earnings per share of $4.00. It has 1.0 million shares outstanding, each price of $40. You are thinking of buying TargetCo, which has earnings per share of $2.00, 1.0 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. If companies in the same industry as TargetCo are trading at multiples of 14 times? earnings, what would be one estimate of an appropriate premium for? TargetCo?

TargetCo has $2.00 in? earnings, so if other companies in its industry are trading at 14 times? earnings, then a starting point for a valuation of TargetCo in this transaction might be $27.90, $28.00, or $27.80 per share, implying a 11.2%, 11.6%, or 12.0%.

Reference no: EM131566405

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