Question

TIUVIUM (20 points) You are given the following facts: World Enterprises (A) Wheelrim& Axle Merged Company (AB) (B) dor EPS $2.4 $3 3.20 Price per share $48 ? $36 12 P/E 20 number of shares 120,000 240,000 ? Total Earnings $288,000 $720,000 Total market value $5,760,000 $8,640,000

Answer 1

Exchange ratio based on market prices=$36/$48=0.75

No. of shares to be issued by A to B= 2,88,000*0.75

=2,16,000 shares

EPS of merged entity i.e., AB=$2,88,000+$7,20,000

1,20,000+2,16,000

=3

Expected market price of new entity ., AB =3.2*20

=$64

Market value of AB=64*336000=$21,504,000