FINANCE 601 ACCESS CODE (CUSTOM)
16th Edition
ISBN: 9781259867668
Author: Ross
Publisher: MCG CUSTOM
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Chapter 29, Problem 6QP
EPS, PE, and Mergers The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here:
| Flannery | Stultz | |
| Price-earnings ratio | 6.35 | 12.70 |
| Shares outstanding | 73,000 | 146.000 |
| Earnings | $230,000 | $690,000 |
Flannery’s shareholders will receive one share of Stultz stock for every three shares they bold in Flannery.
- a. What will the EPS of Stultz be after the merger? What will the PE ratio be if the
NPV of the acquisition is zero? - b. What must Stultz feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover.
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The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here:
Bread
Butter
Price-earnings ratio
16
23
Shares outstanding
96,000
230,000
Earnings
$
180,000
$
900,000
Bread's shareholders will receive one share of Butter stock for every three shares they hold in Bread.
a-1.
What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
a-2.
What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
What must Butter feel is the value of the synergy between these two firms?
a-1.
EPS
a-2.
PE
b.
Synergy value
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here:
Bread
Butter
Price-earnings ratio
7.2
14.4
Shares outstanding
73,000
146,000
Earnings
$ 210,000
$ 630,000
Bread’s shareholders will receive one share of Butter stock for every three shares they hold in Bread.
a-1.
What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
a-2.
What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
What must Butter feel is the value of the synergy between these two firms?
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here:
BreadButterPrice-earnings ratio1023Shares outstanding75,000260,000Earnings$ 230,000$ 1,040,000
Bread's shareholders will receive one share of Butter stock for every three shares they hold in Bread.
a-1.What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
a-2.What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b.What must Butter feel is the value of the synergy between these two firms?
Chapter 29 Solutions
FINANCE 601 ACCESS CODE (CUSTOM)
Ch. 29 - Prob. 1CQCh. 29 - Prob. 2CQCh. 29 - Prob. 3CQCh. 29 - Prob. 4CQCh. 29 - Prob. 5CQCh. 29 - Prob. 6CQCh. 29 - Economies of Scale What does it mean to say that a...Ch. 29 - Prob. 8CQCh. 29 - Prob. 9CQCh. 29 - Prob. 10CQ
Ch. 29 - Prob. 1QPCh. 29 - Prob. 2QPCh. 29 - Prob. 3QPCh. 29 - Prob. 4QPCh. 29 - Cash versus Stock Payment Penn Corp. is analyzing...Ch. 29 - EPS, PE, and Mergers The shareholders of Flannery...Ch. 29 - Prob. 7QPCh. 29 - Cash versus Stock as Payment Consider the...Ch. 29 - Prob. 9QPCh. 29 - Prob. 10QPCh. 29 - Prob. 11QPCh. 29 - Prob. 12QPCh. 29 - Prob. 13QPCh. 29 - Prob. 14QPCh. 29 - Prob. 15QPCh. 29 - Prob. 16QPCh. 29 - Prob. 1MCCh. 29 - Prob. 2MCCh. 29 - Prob. 3MCCh. 29 - Prob. 4MC
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