An acquirer with a P/E ratio of 13 and earnings of $1.95 seeks to take over...
An acquirer with a P/E ratio of 13 and earnings of $1.95 seeks to take over another target firm with value $17.6 and P/E ratio 16. What is the new merged firm's P/E?
Carry out calculations to at least 4 decimal places. Enter percentages as whole numbers. Example: 3.03% should be entered as 3.03. Do not include commas or dollar signs in numerical answers.
Homework Answers
Value of the acquirer = P/E*earnings
= 13*1.95
= $25.35
Now earnings of target firm = Value/(P/E) = 17.6/16 = 1.10
So, combined earnings = 1.95+1.10 = 3.05
And combined value = 25.35+17.6 = 42.95
Thus merged firm's P/E = combined value/combined earnings
= 42.95/3.05
= 14.0820
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calculations to at least 4 decimal places. Enter percentages as
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include commas or dollar signs in numerical answers.
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percentages as whole numbers. Example: 3.03% should be entered as
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Carry out calculations to at least 4 decimal places. Enter
percentages as whole numbers. Example: 3.03% should be entered as
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