Question

Asked Nov 14, 2019

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Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction.

If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then the price per share of the combined corporation after the merger will be closest to:

Answer choices:

A) $17.20

B) $26.00

C) $20.00

D) $19.12

Step 1

With the given information, we can determine the price per share of the combined corporation post merger using the following steps:

Step 2

Step 3

Here, price per share refers to t...

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