Consider the following premerger information about Ludwig Inc. and Courtland Corp.:
Ludwig Inc.
- Price per share$60
- Shares outstanding 550
- Earnings$750
- Courtland Corp.
- Price per share $25
- Shares outstanding 240
- Earnings $360
Assume that Ludwig Inc. acquires Courtland Corp. via an exchange of stock at a price of $27 for each share of Courtland Corp.'s stock. Both Ludwig Inc. and Courtland Corp. have no debt outstanding.
Note: Please make sure your final answers are accurate to 2 decimal places.
a) What will EPS of Ludwig Inc. be after the merger?
Earnings per share = $
b) What will Ludwig Inc.'s price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)?
Price per share = $
c) What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transactions?
Price-earnings ratio =
d) If there are no synergy gains, what will the share price of Ludwig Inc. be after the merger? Share price = $e) If there are no synergy gains, what will the price-earnings ratio be?
Price-earnings ratio =