Andover Bank is planning to purchase Berkley Bank.The current market value of Andover's stock is $55 per share while that of Berkley's stock is $15 per share.Andover plans to pay Berkley's stockholders a $5 bonus per share.Currently,Andover has 100,000 shares outstanding and earnings per share of $12,while Berkley has 50,000 shares outstanding and earnings per share of $5.Suppose the earnings of the combined bank do not increase over the total earnings of the two banks before the merger.In addition assume that the new bank will have 118,182 shares outstanding.What will be the earnings per share for the new bank?

Question

Quizplus · Accepted Answer

The total earnings of the combined bank are the sum of Andover's and Berkley's earnings: (100,000 shares * $12) + (50,000 shares * $5) = $1,200,000 + $250,000 = $1,450,000. With 118,182 shares outstanding, the earnings per share for the new bank is $1,450,000 / 118,182 = $12.27 per share.

Andover Bank Is Planning to Purchase Berkley Bank