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Question 9(10 points). Martin Manufacturing has earnings per share (EPS) of $3.00, 5 million shares outstanding, and a share

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Answer #1
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
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