QUESTION 1:

Bootstrap game: in the lecture we discussed the merger between World Enterprises' and Muck & Slurry. Unfortunately the merger has fallen through but 'World enterprises' is determined to report earnings per share of $2.67. It therefore acquires the Wheelrim & Axle 'company. You are given the following facts: (please copy the last column of the table below in your answer booklet) Wheelrim & Merged firm World Enterprises Axle Earnings per share $2 Price per share Price-earnings ratio 20 Number of shares 100,000 Total earnings Total market value $4,000,000 $5,000,000 $2.50 $25 10 200,000 S500,000 $2.67 $40 $200,000 Once again there are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.67 earnings per share objective i) Complete the above table for the merged firm i) How many shares of World Enterprises are exchanged for each share of Wheelrim & Axle'? ii) What is the cost of the merger to 'World Enterprises'? iv) What is the change in the total market of those World Enterprises' shares that were outstanding before the merger? Bootstrap game: in the lecture we discussed the merger between World Enterprises' and Muck & Slurry. Unfortunately the merger has fallen through but 'World enterprises' is determined to report earnings per share of $2.67. It therefore acquires the Wheelrim & Axle 'company. You are given the following facts: (please copy the last column of the table below in your answer booklet) Wheelrim & Merged firm World Enterprises Axle Earnings per share $2 Price per share Price-earnings ratio 20 Number of shares 100,000 Total earnings Total market value $4,000,000 $5,000,000 $2.50 $25 10 200,000 S500,000 $2.67 $40 $200,000 Once again there are no gains from merging. In exchange for Wheelrim and Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.67 earnings per share objective i) Complete the above table for the merged firm i) How many shares of World Enterprises are exchanged for each share of Wheelrim & Axle'? ii) What is the cost of the merger to 'World Enterprises'? iv) What is the change in the total market of those World Enterprises' shares that were outstanding before the merger