Problem - EPS and post merger price Data for Henry Company and Myer Service are given in the following table. Henry Company is considering merging with Myer by swapping 1.25 shares of its stock for each share of Myer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple as before.
Item Henry Company Mayer Services
Earning available for common stock $225,000 $50,000
Number of shares of common stock outstanding 90,000 15,000
Market price per share $45 $50
a) Calculate the ratio of exchange in market price.
b) Calculate the earning per share (EPS) and price/earning (P/E) ratio for each company.
c) Calculate the price/earnings (P/E) ratio used to purchase Mayer Service.
d) Calculate the post merger earning per share (EPS) for Henry Company.
e) Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.
Henry Company is as follows:
December31
2002 2003
Common Stock $600,000 $600,000
Additional paid-in capital 250,000 250,000
Retained earnings 170,000 370,000
Net income for the year 120,000 240,000
Harry's return on common stockholder's equity, rounded to the nearest percentage point for 2003 is?