a. | |||||
Calculation of new shares to be issued | |||||
New shares = Value of Luther company / Martin share price | |||||
New shares = (20*2) / 32 | |||||
New shares | 1.25 | million | |||
The total number of shares after merger = 5 million + 1.25 million = 6.25 million | |||||
Total earnings after merger = Net earnings of martin + Net earnings of Luther | |||||
Total earnings after merger = (5*3) + (2.50*2) | |||||
Total earnings after merger | 20 | million | |||
EPS of merged firm = ($20/6.25) | $3.20 | ||||
EPS after the merger is $3.20 | |||||
b. | |||||
Martin's pre merger PE ratio = Price/EPS | |||||
Martin's pre merger PE ratio = 32/3 | |||||
Martin's pre merger PE ratio | $10.67 | ||||
Martin's post merger PE ratio = 32/3.20 | |||||
Martin's post merger PE ratio | $10 | ||||
Question 9(10 points). Martin Manufacturing has earnings per share (EPS) of $3.00, 5 million shar...
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