Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering
Question:
Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.
a. Calculate the ratio of exchange in market price.
b. Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company.
c. Calculate the price/earnings (P/E) ratio used to purchase Mayer Services.
d. Calculate the postmerger earnings per share (EPS) for Henry Company.
e. Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.
Item Henry Company Earnings available for common stock Number of shares of common stock outstanding Market price per share $225,000 90,000 $45 Mayer Services $50,000 15,000 $50
Step by Step Answer:
a Market price ratio of exchange 45 125 50 1125 b Henry Company EPS 225000 90000 250 ...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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