UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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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
5.26
21.04
Shares outstanding
57,000
228,000
Earnings
$ 205,000
$ 1,025,000
Bread's shareholders will receive one share of Butter stock for every five shares they hold in Bread.
What will the EPS of Butter be after the merger?
What will the PE ratio be if the NPV of the acquisition is zero?
Data for Henry Company and Mayer Services are given in the following table :
Item
Henry Company
Mayer Services
Earnings available for common stock
$195,000
$45,000
Number of shares of common stock outstanding
75,000
25,000
Market price per share
$31
$23
Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.
a. Calculate the ratio of exchange in market price.
b. Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company.
c. Calculate the price/earnings (P/E) ratio used to purchase Mayer Services.
Data for Henry Company and Mayer Services are given in the following table :
Item
Henry Company
Mayer Services
Earnings available for common stock
$195,000
$45,000
Number of shares of common stock outstanding
75,000
25,000
Market price per share
$31
$23
Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.
d. Calculate the post-merger earnings per share (EPS) for Henry Company.
e. Calculate the expected market price per share of the merged firm.
Chapter 29 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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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