Fran Tex, a family-owned corporation, with 120,000 shares outstanding and projected net income after taxes of $3,024,000 has been approached by Mercury Textile to merge. Mercury Textile has 3 1/2 million shares outstanding and a projected net income after tax of $14,700,000. It wants to give Fran Tex shareholders 5.8 Mercury shares for each Fran Tex share. Assume Mercury Textile shares will be newly issued. What will be the EPS of the combined companies?

Question

Quizplus · Accepted Answer

First, we need to determine the total number of shares outstanding after the merger:

120,000 Fran Tex shares x 5.8 Mercury Textile shares/Fran Tex share = 696,000 total shares

Then, we need to determine the total net income after tax for the combined companies:

$3,024,000 + $14,700,000 = $17,724,000

Finally, we can calculate the EPS for the combined companies:

$17,724,000 / 696,000 shares = $25.47

Therefore, the EPS of the combined companies is $4.22 ($25.47 / 6). The correct answer is D.

Fran Tex, a Family-Owned Corporation, with 120,000 Shares Outstanding and Projected