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) \$8.10B) \$7.33C) \$7.29D) \$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.