Question

Willow Enterprises is considering the acquisition of Steadfast Corp. in a stock swap transaction. ​ Currently, Willow's stock is selling for ​$50 per share. Although​ Steadfast's shares are currently trading at ​$31 per​ share, the​ firm's asking price is $ 62 per share.

a.  If Willow accepts​ Steadfast's terms, what is the ratio of exchange​?

b.  If Steadfast has 18,000 shares​ outstanding, how many new shares must Willow issue to consummate the​ transaction? c.  If Willow has 300,000 shares outstanding before the​ acquisition, and earnings for the merged company are estimated to be ​$400,000​, what is the EPS for the merged​ company?

a.  If Willow accepts​ Steadfast's ​terms, the ratio of exchange is nothing.  ​(Round to six decimal​ places.)

b.  If Steadfast has 18 ,000 shares​ outstanding, howthe number of new shares Willow must issue to consummate the transaction is nothing shares. ​(Round to the nearest whole​ number.)

c.  The EPS for the merged company is ​$ nothing. ​(Round to the nearest​ cent.)

Answer 1

a) If willow accept steadfast's terms, ratio of exchange will be 62 : 50 which is equal to 31 : 25

i.e for every 25 shares of steadfast corp, 31 shares of willow enterprises is issued

b) Number of shares issued to steadfast corp = 18000 shares * 31/25

= 22,320 shares

c) EPS of merged company = Earnings of the merged Company/ Total number of shares of merged company

= $400,000 / (300,000 shares + 22,320 shares)

= $ 1.241 per Share