World Enterprises is determined to report earnings per share of $2.67.It therefore acquires the Axle Company:
$\begin{array}{|l|r|r|r|}\hline&\text { World Enterprises } &\text { Axle Company }& \text { Merged Firm }\
\hline \text { Earnings per share } & \$ 2.00 & \$ 2.50 & \$ 2.67 \
\hline \text { Price per share } & \$ 40.00 & \$ 25.00 & \
\hline \text { Price-earningsratio } & 20 & 10 & \
\hline \text { Number of shares } & 100,000 & 200,000 & \
\hline \text { Total earnings } & \$ 200,000 & \$ 500,000 & \
\hline \text { Total market value } & \$ 4,000,000 & \$ 5,000,000 &\\hline
\end{array}$ There are no gains from the merger.In exchange for 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 Axle?
c.What is the cost of the merger to World Enterprises?
d.What is the change in the total market value of those World Enterprises shares that were outstanding before the merger?

Question

World Enterprises is determined to report earnings per share of $2.67.It therefore acquires the Axle Company:
 $\begin{array}{|l|r|r|r|}\hline&\text { World Enterprises } &\text { Axle Company }& \text { Merged Firm }\
\hline \text { Earnings per share } & \$ 2.00 & \$ 2.50 & \$ 2.67 \
\hline \text { Price per share } & \$ 40.00 & \$ 25.00 & \
\hline \text { Price-earningsratio } & 20 & 10 & \
\hline \text { Number of shares } & 100,000 & 200,000 & \
\hline \text { Total earnings } & \$ 200,000 & \$ 500,000 & \
\hline \text { Total market value } & \$ 4,000,000 & \$ 5,000,000 &\\hline
\end{array}$ There are no gains from the merger.In exchange for 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 Axle?
c.What is the cost of the merger to World Enterprises?
d.What is the change in the total market value of those World Enterprises shares that were outstanding before the merger?

Quizplus · Accepted Answer

The Answer of World Enterprises is determined to report earnings per share of $2.67.It therefore acquires the Axle Company:
 $\begin{array}{|l|r|r|r|}\hline&\text { World Enterprises } &\text { Axle Company }& \text { Merged Firm }\
\hline \text { Earnings per share } & \$ 2.00 & \$ 2.50 & \$ 2.67 \
\hline \text { Price per share } & \$ 40.00 & \$ 25.00 & \
\hline \text { Price-earningsratio } & 20 & 10 & \
\hline \text { Number of shares } & 100,000 & 200,000 & \
\hline \text { Total earnings } & \$ 200,000 & \$ 500,000 & \
\hline \text { Total market value } & \$ 4,000,000 & \$ 5,000,000 &\\hline
\end{array}$ There are no gains from the merger.In exchange for 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 Axle?
c.What is the cost of the merger to World Enterprises?
d.What is the change in the total market value of those World Enterprises shares that were outstanding before the merger?

World Enterprises Is Determined to Report Earnings Per Share of $2.67.It