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Question: Consider the following premerger information about

Consider the following premerger information about Firm A and Firm B:
Consider the following premerger information about Firm A and Firm B:


Assume that Firm A acquires Firm B via an exchange of stock at a price of $61 for each share of B’s stock. Both Firm A and Firm B have no debt outstanding.
a. What will the earnings per share (EPS) of Firm A be after the merger?
b. What will Firm A’s price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)?
c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction?
d. If there are no synergy gains, what will the share price of Firm A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount Firm A bid for Firm B? Was it too high? Too low? Explain.

Assume that Firm A acquires Firm B via an exchange of stock at a price of $61 for each share of B’s stock. Both Firm A and Firm B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger? b. What will Firm A’s price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)? c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? d. If there are no synergy gains, what will the share price of Firm A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount Firm A bid for Firm B? Was it too high? Too low? Explain.


2.99

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