Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $42. You are thinking of buying TargetCo, which has earnings per share of $1, 1 million shares outstanding, and a price per share of $20. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 17% premium to buy TargetCo. Assume that on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover. a. What is the price per share of the combined corporation a. What is the price per share of the combined corporation immediately after the merger is completed? The share price will be $ (Round to the nearest cent.)
Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $42. You are thinking of buying TargetCo, which has earnings per share of $1, 1 million shares outstanding, and a price per share of $20. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 17% premium to buy TargetCo. Assume that on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover. a. What is the price per share of the combined corporation a. What is the price per share of the combined corporation immediately after the merger is completed? The share price will be $ (Round to the nearest cent.)
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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am. 104.
Transcribed Image Text:Your company has earnings per share of $4. It has 1 million
shares outstanding, each of which has a price of $42. You are
thinking of buying TargetCo, which has earnings per share of $1,
1 million shares outstanding, and a price per share of $20. You
will pay for TargetCo by issuing new shares. There are no
expected synergies from the transaction. Suppose you offer an
exchange ratio such that, at current pre-announcement share
prices for both firms, the offer represents a 17% premium to buy
TargetCo. Assume that on the announcement the target price will
go up and your price will go down to reflect the fact that you are
willing to pay a premium for TargetCo. Assume that the takeover
will occur with certainty and all market participants know this on
the announcement of the takeover.
a. What is the price per share of the combined corporation
a. What is the price per share of the combined corporation
immediately after the merger is completed?
The share price will be $
(Round to the nearest cent.)
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