Calculate earnings per share (EPS

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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At the end of 2020, CVN ltd. had 120,000 shares of common stock outstanding and had earnings available
for common of $300,000. TPO ltd., at the end of 2020, had 15,000 shares of common stock outstanding and
had earned $28,000 for common shareholders. CVN’s earnings are expected to grow at an annual rate of 6%
in next 6 years, and TPO’s growth rate in earnings would be 12% per year in next 6 years.

Calculate earnings per share (EPS) for CVN and TPO for year 2020 and each of the next 6 years if CVN
acquires TPO at a ratio of exchange of 1.3.

Describe the initial effect and long run effect on EPS of CVN and TPO. Does merger look beneficial for
CVN and TPO? Why or why not?

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