Shim Company wishes to acquire Siegel Company by exchanging 0.8 share of its stock for each share of Siegel. Financial data follow:
|
Shim
|
Siegel
|
|
Net income
|
$200,000
|
$40,000
|
|
Shares outstanding
|
50,000
|
20,000
|
|
Earnings per share
|
$4
|
$2
|
|
Market price
|
$40
|
$16
|
|
P/E ratio
|
10
|
8
|
Shim issues its shares to make the acquisition. (a) How many shares must Shim issue in the acquisition? (b) Assuming the net income of each firm remains the same, what is the earnings per share after the acquisition? (c) What is the amount earned per share on the original shares of Siegel stock? (d ) What is the amount earned per share on the original shares of Shim stock?