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Calculating the reported earnings growth

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Reference no: EM131402280

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 =

Reference no: EM131402280

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