Question

You are given the following facts: World Enterprises (A) Wheelrim& Axle (B) Merged Company (AB) EPS $2.4 $3 3.20 Price per share $48 $36 12 ? ? P/E 20 number of shares 120,000 240,000 Total Earnings $288,000 $720,000 Total market value $5,760,000 $8,640,000

Answer 1

EPS is 3.20

a)Total Combined earnings = 288000+ 720000 = 1008000

b)No. of shares = Total Earnings/ EPS

= 1008000/3.20

=315000 shares

c)Total market Value of World entreprises = 5760000 + 8640000

=14400000

d)Price per Share= Total market Value of World entreprises/ No. of shares

=14400000/ 315000

45.71

e) PE ratio = price/EPS

=45.71/3.20

=14.28

2) Total shares of wheel rim and axle = 360000 shares

total share of world enterprises = 315000

For each share in wheelrim and axle, the shareholder gets 315000/360000 = 0.875 share of World entreprises