EPS, PE, and Mergers The shareholders of Flannery Company have voted in favor of a buyout offer
Question:
EPS, PE, and Mergers The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here:
Flannery's shareholders will receive one share of Stultz stock for every three shares they hold in Flannery.
a. What will the EPS of Stultz be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?
b. What must Stultz feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover.
Income Statement Balance Sheet Last Year End of Year ($ in millions) ($ in millions) Revenue $110 Assets $400 Fuel 50 Debt 300 Other expenses 30 Equity 100 Interest 30 Net income
Step by Step Answer:
a The EPS of the combined company will be the sum of the earnings of both companies divided by the s...View the full answer
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Related Video
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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