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16 October, 11:48

Essex Industries is considering the acquisition of Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001. Essex Twinsburg Sales $500 million $50 million Net income $40 million $3.74 million Common shares outstanding 5 million 1 million Earnings per share $8.00 $3.74 Dividends per share $3.00 $1.00 Common stock market price $64 $24 Price/earnings ratio 8 6.42 Calculate the post-merger earnings per share if the exchange ratio is 0.4 shares of Essex for each share of Twinsburg. (Assume total post-merger earnings are $43,740,000.) A) $8.10

B) $7.33

C) $7.29

D) $7.42

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  1. 16 October, 11:51
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    The correct option is A,$8.10

    Explanation:

    The post merger earnings per share of the combined business is the post merger earnings divided by the post merger weighted average number of shares.

    Post merger earnings is $43,740,000

    Post merger number of shares is combination of Essex shares before merger plus the equivalent shares given to Twinsburg shareholders in the new company.

    Essex shares 5,000,000

    Twinsburg (0.4/1*1,000,000) 400,000

    Total post merger shares 5,400,000

    Earnings per share post merger = $43,740,000/5,400,000=$8.10

    The correct option is A.
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