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Common stock for SeaScape

At the end of 2012, SeaScape Industries has 100,000 shares of common stock outstanding and had earnings available to the common shareholder of $200,000.

Tara Company, at the end of 2012 had 12,000 shares of common stock outstanding and had earned $25,000 for common shareholders.

SeaScape's earnings are expected to grow at an annual rate of 5% and Tara's growth rate per year is expected to be 10%.

A.    Calculate the earnings per share of SeaScape Industries for the next three (3) years (2013 - 2015) assuming that this is no merger.

B.    Calculate the earnings per share of SeaScape Industries for the next three (3) years (2013 - 2015) assuming that it acquires Tara Company in 2012 at an exchange ratio of 1.1

C.     Compare your findings in a) and b) above and indicate whether the acquisition would be favorable.

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Here is the response:

At the end of 2012, SeaScape Industries has 100,000 shares of common stock outstanding and had earnings available to the common shareholder of $200,000.
Tara Company, at the end of 2012 had 12,000 shares of common stock outstanding and had earned $25,000 for common shareholders.
SeaScape's earnings are expected to grow at an annual rate of 5% and Tara's growth rate per year is expected to be 10%.

A.    Calculate the earnings per share of ...

Solution Summary

Mergers and acquisitions need to be analyzed to insure it is the proper move for a company. As such, it includes determining risk factors, potential for increasing market value of the firm, increase earnings to the shareholder, and provide some level of comfort that an acquisition has more merit than growing a business organically.

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