Question: The Muck and Slurry merger has fallen through (see Section 33.2). But World Enterprises is determined to report earnings per share of $2.67. It therefore

The Muck and Slurry merger has fallen through (see Section 33.2). But World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Wheelrim and Axle Company. You are given the following facts:

World Enterprises Wheelrim Merged Firm and Axle Earnings per share Price per

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.

a. Complete the above table for the merged firm.

b. How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle?

c. What is the cost of the merger to World Enterprises?

d. What is the change in the total market value of the World Enterprises shares that were outstanding before themerger?

World Enterprises Wheelrim Merged Firm and Axle Earnings per share Price per share Price-earnings ratio Number of shares Total earnings Total market value $2.00 $40 $2.50 $25 $2.67 20 10 100,000 $200,000 $4,000,000 200,000 $500,000 $5,000,000

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