Finance: Share calculations.
Not what you're looking for?
ABC is evaluating a proposed merger into DEF. ABC had 2009 earnings of $200,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. DEF had 2009 earnings of $800,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.
(a) Calculate the expected earnings per share (EPS) for ABC for each of the next five years (2010-2014) without the merger. (5marks)
(b) What would ABC's stockholders earn in each of the next 5 years (2010-2014) on each of their ABC shares swapped for DEF shares a a ratio of (i) 0.6 shares and (ii) 0.8 shares of DEF for one share of ABC? (10marks)
(c) Graph the pre-merger and post-merger EPS figures developed in parts (a) and (b) with the year on the x axis and the EPS on the y axis. (6marks)
(d) If you were the financial manager for ABC, which would you recommend from part (b): (i) or (ii)? Explain your answer. (6marks)
Purchase this Solution
Solution Summary
The problem set deals with determining the earnings per value for shares, and putting the results in a graphical diagram.
Solution Preview
EPS AND MERGERS QUESTIONS
ABC is evaluating a proposed merger into DEF. ABC had 2009 earnings of $200,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. DEF had 2009 earnings of $800,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.
(a) Calculate the expected earnings per share (EPS) for ABC for each of the next five years (2010-2014) without the merger.
ABC
Year 2010 2011 2012 2013 2014
Earnings $214,000 $228,980 $245,009 $262,159 $280,510
Number of ...
Education
- B. Sc., University of Nigeria
- M. Sc., London South Bank University
Recent Feedback
- "Thank you."
- "thank you Chidi Ngene.. if you have any APA references would be great"
- "Thank you so much for your help, your explanations were easy to understand and apply!"
- "are you able to highlight the equations used either on the xlsx or a word doc as to how each graph was formed- overall looks fine i just need help understanding this myself"
- "Chidi Ngene, M. Sc. Was extremely helpful as without the help and guidance I would have failed, but with the help I passed. I still have a lot to learn and in need of the guidance to understand and learn more on the subject. I would recommend Chidi Ngene and BrainMass to anyone that are in need of help. Thank you!!"
Purchase this Solution
Free BrainMass Quizzes
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Introduction to Finance
This quiz test introductory finance topics.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.