Safran S.A. is considering a merger with Zodiac Aerospace. Safran had earnings of €15.78 billion last year, has 409 million shares outstanding, and expects earnings to grow at an annual rate of 5%. Zodiac had earnings of €5.2 billion last year, has 280 million shares of common stock outstanding, and expects earnings to grow at 4% per year.

a. Calculate the expected earnings per share (EPS) for Safran for each of the next six years without the merger (which includes the last year’s earnings of €15.78 billion).

b. What would Safran’s stockholders earn in each of the next six years if each of their Safran shares was swapped for Zodiac shares at a ratio of (1) 2 and (2) 1.8 share of Zodiac for 1 share of Safran?

c. Graph the premerger and postmerger EPS figures developed in parts a and b with the year on the x-axis and the EPS on the y-axis.

d. If you were the financial manager of Safran, which would you recommend from part b, (1) or (2)? Explain your answer.