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  3. 1. your company has earnings per share of $4. it h

1. Your company has earnings per share of $4. It has 1 million shares outstanding,...

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Finance

1. Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. a. If you pay no premium to buy TargetCo, what will be your earnings per share after the merger? b. Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will be your earnings per share after the merger? c. What explains the change in earnings per share in (a)? Are your shareholders any better or worse off? d. What will be your price-earnings ratio after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCos premerger P/E ratio?

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