FIN 3206 ISSUES IN FINANCIAL MANAGEMENT.ASSIGNMENT THREE.

INSTRUCTIONS:

1. Answer all questions.

2. Show relevant workings

3. Hand in your answers document within seven daysfrom 26th November 2021.

Question

At the end of 2012, Lake Industries had 80,000 shares of Common stock outstanding and had earnings available for common shareholders of $160,000. Butler Company, at the end of 2012, had 10,000 shares of common stock outstanding and had earned $20,000 for common shareholders. Lakes earnings are expected to grow at an annual rate of 5%, and Butlers growth rate in earnings should be 10% per year.

Required:

a) Calculate earnings per share (EPS) for Lake Industries for each of the next 5 years (2013-2017), assuming that there is no merger.

b) Calculate the next 5 years (2013-2017) earnings per share (EPS) for Lake if it acquires Butler at a ratio of exchange of 1.1.

c) Compare your findings in parts (a) and (b), and explain why the merger looks attractive when viewed over the long run.