Answer:
1) 0.8333
2) 16,666
3) 2.33
4) 56.40
5) 2.2
Explanation:
Share Exchange Ratio = Price per share for Target Company / Market price per share for Acquiring Company = $50 / $60 = 0.8333
New shares issued by Acquiring Company = Shares of Target Company x Exchange ratio (20,000 x 0.8333) = 16,666
Total shares outstanding of the combined companies = 60,000 + 16,666 = 76,666
Post-merger EPS of the combined companies = ($150,000 + $30,000)/ 76,666 = $2.35
Pre-merger EPS of Acquiring Company = $150,000 / 60,000 = $2.50
Post-merger share price = $2.35 x 24 (pre-merger P/E = $60.00/$2.50) = $56.40
Purchase price = 50 * 20,000 = 1,000,000
Interest expense = 1,000,000 * 8% = 80,000
Post-merger earnings = 150,000 + 30,000 – 80,000 * (1-0.4) = 132,000
Therefore, Post-merger EPS of the combined companies = 132,000/60,000 = 2.2
