The smarter way
to do assignments.

Please note that this is just a preview of a school assignment posted on our website by one of our clients. If you need assistance with this question too, please click on the Order button at the bottom of the page to get started.

Bootst r ap Gam e . The Muck and Slurry merger has fallen through (see Section 6.3). But World Enterprises is determined to report earnings per share of \$2.67. It therefore acquires the Wheelrim and Axle Company. You are given the following facts: W o r ld Ente r prises Wheelrim and Axle Me r g ed Firm Earnings per share \$2.00 \$2.50 \$2.67 Price per share \$40.00 \$25.00 Price-earnings ratio 20 10 Number of shares 100,000 200,000 Total earnings \$200,000 \$500,000 Total market value \$4,000,000 \$5,000,000 Once again there are no gains from merging. In exchange for Wheelrim and 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 Wheelrim and 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?
Solution: a) World Wheel rim and Axle Merged Workings Enterprises Firm Earnings per share 2 2.5 2.67 Given Price per share 40 25 34.33 9000000/262172 Price-earnings ratio 20 10 12.86 34.33/2.67 Number of shares 1,00,000 2,00,000 2,62,172 700000/2.67 Total earnings 200000 500000 7,00,000.00 200000+500000 Total market value 4000000 5000000 90,00,000.00 4000000+5000000 b) Per share exchange = Aditional sahres / Shares of Wheelrim = 162172 / 200000 = 0.81 share of World Enterprises are exchanged for each share of Wheelrim and Axle c) Cost of…

r = Value of shares given to Wheelrim – Value of Wheelrim = (162172 * 34.33) – 5000000 = 567365 d) Change in the total market value of those World Enterprises shares that were outstanding before the merger: = No of sahres outstanding before merger * (Price after merger – Price before merger) = 100000 * (34.33 – 40) = (-) 567000 [ Market value has fallen by 567000]

GET HELP WITH THIS ASSIGNMENT TODAY

Clicking on this button will take you to our custom assignment page. Here you can fill out all the additional details for this particular paper (grading rubric, academic style, number of sources etc), after which your paper will get assigned to a course-specific writer. If you have any issues/concerns, please don’t hesitate to contact our live support team or email us right away.