Firm B is The Bidding Firm and Firm T is the Target Firm.Their financial data...
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Firm B is The Bidding Firm and Firm T is the Target Firm.Their financial data is as follows:
| item | Firm B | Firm T |
| Total earning (E) | US $10 million | US $5 Million |
| Number of outstanding shares(s) | 5 Million | 5 Million |
| Earnings per share (EPS) | US$2 | US$1 |
| P/E ratio | 6 | 4 |
| Market Price per share (P) | US$12 | US$4 |
(A) calculate the weighted average weighted average P/E for the combined Firm BT.
(B)Calculate the Maxium number of shares firm B will be willing to offer to the sockholders of firm T at the P/E calculated in Part (A) above.What will be the minimum number of shares acceptable to the stockholders of firm T at the same P/E level?
(C) If EPS was the criterion to determine the exchange ratio,how many shares firm B would offer to stockholders of firm T?in case,Market price per share was used as a basis to determine the exchange ratio,how much would your result change?which one do you think would be a better criterion for exchange rate determination?why?
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