Question content area top Part $1$ Your company has earnings per share of $ $4\mathrm{.}00$$$4\mathrm{.}00.$ It has $11$ million shares$$ outstanding, each of which has a price of $ $40\mathrm{.}00$$$40\mathrm{.}00.$ You are thinking of buying$$ TargetCo, which has earnings per share of $ $2\mathrm{.}00$$$2\mathrm{.}00,11$ million$$ shares, and a price per share of $ $25\mathrm{.}00$$$25\mathrm{.}00.$ You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. a$.$ If you pay no premium to buy$$ TargetCo, what will be your earnings per share after the$$ merger? b$.$ Suppose you offer an exchange ratio such$$ that, at current$$ pre$-$announcement share prices for both$$ firms, the offer represents a $20\%20\%$ premium to buy TargetCo. What will be your earnings per share after the$$ merger? c$.$ What explains the change in earnings per share in part $($a$)?$ Are your shareholders any better or worse$$ off? d$.$ What will be your$$ price$-$earnings ratio after the merger$($if you pay no$$ premium$)?$ How does this compare to your$$ P$/$E ratio before the$$ merger? How does this compare to$$ TargetCo's premerger$$ P$/$E ratio? Your company has earnings per share of $\backslash (\backslash$$ $4\mathrm{.}00\backslash ).$ It has $1$ million shares outstanding, each of which has a price of $\backslash (\backslash$$ $40\mathrm{.}00\backslash ).$ You are thinking of buying TargetCo, which has earnings per share of $\backslash (\backslash$$ $2\mathrm{.}00,1\backslash )$ million shares, and a price per share of $\backslash (\backslash$$ $25\mathrm{.}00\backslash ).$ You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.

a$.$ If you pay no premium to buy TargetCo, what will be your earnings per share after the merger?

b$.$ Suppose you offer an exchange ratio such that, at current pre$-$announcement share prices for both firms, the offer represents a $\backslash (20\backslash \%\backslash )$ premium to buy TargetCo. What will be your earnings per share after the merger?

c$.$ What explains the change in earnings per share in part $($a$)?$ Are your shareholders any better or worse off?

d$.$ What will be your price$-$earnings ratio after the merger $($if you pay no premium$)?$ How does this compare to your P$/$E ratio before the merger? How does this compare to TargetCo's premerger P$/$E ratio?