Question

1) Describe the procedures that are typically used by an acquirer to value a target company, whether it is being acquired for its assets or as a going concern operation.

2) ABC cpmpany is attempting to acquire ZXY company. Selected financial data is presented for both companies in the table below:

item	ABC	ZXY
Earnings available for common stock	$100,000	$40,000
Number of shares of outstanding stock	100,000	20,000
Market price per share	$60	$120

ABC has sufficient authorized but unissued shares to carry out the proposed merger. If the ratio of exchange is 1.8, what will be the EPS of the merged firm?

Answer 1

As per policy only Q2 is being answered, please ask Q1 seperately.

Q2) Total Earning Available in merged firm = ABC Earnings + ZXY Earnings = 100,000 + 40,000 = 140,000

Total No. of Shares of merged firm = ABC's Existing Shares + (ZXY's shares * 1.8) = 100,000 + (20,000*1.8) = 136,000

EPS of merged firm = 140,000 / 136,000 = 1.03 per share.

EPS is the allocated earnings for one share. It is obtained by dividing the total earnings attributable to the shares divided by the no. of outstanding shares (subject to time weighted factor.).