What are the post-merger earnings per share

Reference no: EM131290841

Finance- Mergers & Acquisitions

Dipsy Sauces & Gravies Industries has negotiated the acquisition of Doodle Pasta Corporation with a new name of Dipsy Doodle Noodle Company. Under the terms of the merger, Doodle stockholders will receive .7 shares of Dipsy for each of their old shares. The pre-merger data for the two firms is:

	Dipsy	Doodle
Sales	$500,000,000	$160,000,000
Net Incom	25,000,000	14,000,000
Common shares outstanding	8,550,000	15,000,000
Stock Price	$97.25	$18.00

1. Based on the original shares, what is Dipsy's EPS?

2. Based on the original shares, what is Doodle's EPS (What is the effective EPS that Doodle stockholders receive?)?

3. What are the post-merger earnings per share?

4. What is the maximum number of new shares that must be issued to Doodle stockholders?

5. If Dipsy decides to pay $30 per share for Doodle, what would be the exchange ratio?

6. Based on the $30 per share purchase, how many new shares of Dipsy stock would need to be issued?

7. Based on the $30 per share purchase, what would be the new EPS for the new merged company?

Peaches & Cream Ice Cream Factory is trying to acquire Diet Delight Weight Management Studios. Diet has a tax loss carryforward of $3 million. Diet can be acquired for $2.4 million. Diet has liquidatable assets of $1.5 million. Peaches estimates that its EBT in the 5 years after the merger would be as shown on the next page:

YEAR	Earnings Before Taxes
1	$450
2	$800
3	$850
4	$800
5	$800

The expected earnings given are assumed to fall within the annual limit that is legally allowed for the application of the tax loss carryforward. Peaches is in the 40% tax bracket. The firm has a cost of capital of 12%.

8. What would be Peaches' tax liability for the 1st year without the merger?

9. What would be Peaches' tax liability for the 4th year with the merger?

10. What would be the highest value for Diet based only on the cumulative tax savings?

11. What would be the most Peaches should be expected to pay for Diet based only on the present value of the tax savings?

12. Based on the asking price of Diet, what should be the most you, as CFO, would pay for Diet?

Reference no: EM131290841

Questions Cloud

Actors in the role of pushing foreign policy : MNCs, IOs, NGOs, and the European Union are non-state actors in the role of pushing foreign policy to combat terrorism. Discuss one or two ways in which the national strategy influences any of these non-state actors.

What skills will future executives need to possess : As the marketing research industry expands, what skills will future executives need to possess? How do these skills differ from those currently needed to function successfully in the marketing research field?

What is sustainable development : Please help me with second essay question: What is sustainable development? Why is sustainability a dilemma for MNCs? Provide a "real world" example w/rationale and direct connection to course concepts and terms.

Japanese and american communication styles : Please help me with this essay question: What are some of the differences between Japanese and American communication styles? What can American managers do to improve business communications with Japanese managers?

What are the post-merger earnings per share : What are the post-merger earnings per share? What is the maximum number of new shares that must be issued to Doodle stockholders? If Dipsy decides to pay $30 per share for Doodle, what would be the exchange ratio?

Manager performed the same cavity : Review "Clippings" on pages 607-608 of your textbook about the McDonald's strip search incident. Imagine a scenario that is not quite as egregious as the one referenced. Instead, imagine that a female assistant manager performed the same cavity se..

Discuss the importance of target market analysis : Discuss the importance of target market analysis. How does it affect the development of market planning for a particular company?

Briefly describe the public health issue : Briefly describe and justify the theory in which you will use to support your campaign.Explain the initial methods you plan to use to create your public health campaign and explain why you selected those methods.Briefly describe your goals for imple..

How marketing research helps marketing personnel : Provide three examples of how marketing research helps marketing personnel make sound managerial decisions.

User Account

All Pages