The Jeter Corporation is considering acquiring the A-Rod Corporation. The data for the two companies are as follows:

a. The Jeter Corp. is going to give A-Rod Corp. a 60 percent premium over A-Rod’s current market value. What price will it pay?
b. At the price computed in part a, what is the total market value of A-Rod Corp.? (Use the number of A-Rod Corp. shares times price.)
c. At the price computed in part a, what is the P/E ratio Jeter Corp. is assigning A-Rod Corp?
d. How many shares must Jeter Corp. issue to buy the A-Rod Corp. at the total value computed in part b? (Keep in mind that Jeter Corp.’s price per share is $30.)
e. Given the answer to part d, how many shares will Jeter Corp. have after the merger?
f. Add together the total earnings of both corporations and divide by the total shares computed in part e. What are the new postmerger earnings per share?
g. Why has Jeter Corp.’s earnings per share gone down?
h. How can Jeter Corp. hope to overcome thisdilution?

  • CreatedOctober 14, 2014
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