Assume the Knight Corporation is considering the acquisition of Day Inc. The expected earnings per share for
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Assume the Knight Corporation is considering the acquisition of Day Inc. The expected earnings per share for the Knight Corporation will be $4.00 with or without the merger. However, the standard deviation of the earnings will go from $2.40 to $1.60 with the merger because the two firms are negatively correlated.
a. Compute the coefficient of variation for the Knight Corporation before and after the merger (consult Chapter 13 to review statistical concepts if necessary).
b. Discuss the possible impact on Knight’s postmerger P/E ratio, assuming investors are risk-averse.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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