The Muck and Slurry merger has fallen through .But World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Wheel rim and Axle Company. You are given the following facts:
|
World Enterprises |
Wheel rim and Axle |
Merged Firm |
|
|
Earnings per share |
$2.00 |
$2.50 |
$2.67 |
|
Price per share |
$40 |
$25 |
? |
|
Price–earnings ratio |
20 |
10 |
? |
|
Number of shares |
100,000 |
200,000 |
? |
|
Total earnings |
$200,000 |
$500,000 |
? |
|
Total market value |
$4,000,000 |
$5,000,000 |
? |
Once again there are no gains from merging. In exchange for Wheel rim 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 Wheel rim 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 the merger?