World Enterprises is determined to report earnings per share of $2.17. It therefore acquires the Wheelrim and Axle Company. You are given the following facts: World Enterprises Wheelrim and Axle Merged Firm Earnings per share $ 1.80 $ 2.40 $2.17 Price per share $ 36.00 $ 24.00 ? Price–earnings ratio 20 10 ? Number of shares 90,000 140,000 ? Total earnings $ 162,000 $ 336,000 ? Total market value $ 3,240,000 $ 3,360,000 ? There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.17 earnings per share objective. Required: Complete the below table for the merged firm. How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle? What is the cost of the merger to World Enterprises? What is the change in the total market value of the World Enterprises shares that were outstanding before the merger?
World Enterprises is determined to report earnings per share of $2.17. It therefore acquires the Wheelrim and Axle Company. You are given the following facts: World Enterprises Wheelrim and Axle Merged Firm Earnings per share $ 1.80 $ 2.40 $2.17 Price per share $ 36.00 $ 24.00 ? Price–earnings ratio 20 10 ? Number of shares 90,000 140,000 ? Total earnings $ 162,000 $ 336,000 ? Total market value $ 3,240,000 $ 3,360,000 ? There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.17 earnings per share objective. Required: Complete the below table for the merged firm. How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle? What is the cost of the merger to World Enterprises? What is the change in the total market value of the World Enterprises shares that were outstanding before the merger?
Chapter14: Distributions To Shareholders: Dividends And Repurchases
Section: Chapter Questions
Problem 2STP
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Question
World Enterprises is determined to report earnings per share of $2.17. It therefore acquires the Wheelrim and Axle Company. You are given the following facts:
| World Enterprises |
Wheelrim and Axle |
Merged Firm | |||||||||
| Earnings per share | $ | 1.80 | $ | 2.40 | $2.17 | ||||||
| Price per share | $ | 36.00 | $ | 24.00 | ? | ||||||
| Price–earnings ratio | 20 | 10 | ? | ||||||||
| Number of shares | 90,000 | 140,000 | ? | ||||||||
| Total earnings | $ | 162,000 | $ | 336,000 | ? | ||||||
| Total market value | $ | 3,240,000 | $ | 3,360,000 | ? | ||||||
There are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.17 earnings per share objective.
Required:
- Complete the below table for the merged firm.
- How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle?
- What is the cost of the merger to World Enterprises?
- What is the change in the total market value of the World Enterprises shares that were outstanding before the merger?
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