DEVRY FIN 516 Week 6 Homework
Check this A + tutorial guideline at
http :// www . assignmentclick . com / fin- 516-new / fin-516-week-6-homework
For more classes visit http :// www . assignmentclick . com
FIN 516 Week 6 Homework Problem 28-9 on Acquisition Analysis Based on Chapter 28 Mergers and Acquisitions
Your company has earnings per share of $ 4 . It has 1 million shares outstanding , each of which has a price of $ 40 . You are thinking of buying TargetCo , which has earnings per share of $ 2 , 1 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 .
a ) If you pay no premium to buy TargetCo , what will your earnings per share be after the merger ?
b ) Suppose you offer an exchange ratio such that , at current preannouncement share prices for both firms , the offer represents a 20 % premium to buy TargetCo . What will your earnings per share be after the merger ?
c ) What explains the change in earnings per share in part a )? Are your shareholders any better or worse off ?