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

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.

Item Henry Company Earnings available for common stock Number of shares of

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

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a Market price ratio of exchange 45 125 50 1125 b Henry Company EPS 225000 90000 250 ... View full answer

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