The Schoettler Company wishes to acquire the Stevens Company. If the merger were effected through an exchange of stock, Schoettler would be willing to pay a 25 percent premium for the Stevens shares. If done for cash, the terms would have to be just as favorable to the Stevens shareholders. To obtain the cash, Schoettler would have to sell its own common stock in the market.

a. Compute the share exchange ratio and the combined expected earnings per share for Schoettler under an exchange of common stock.
b. If we assume that all Stevens shareholders have held their common stock for more than one year, have a 28 percent marginal capital gains tax rate, and have paid an average of $14 for their shares, what cash price would have to be offered to be just as attractive as the terms in Part (a)?

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NUMBER OF SHARES 1,000,000 500,000 TAX RATE 50% 50% EXPECTED MARKET PRICE PER SHARE $100 Schoettler Company Stevens Company 3,000,000 60