Reference no: EM133087936

Questions -

1. ABC Corporation announced that it would pay a dividend to all shareholders of record as of Monday, April 5, 2010. It takes three business days after a purchase for the new owners of a share of stock to be registered.

2. What was the date of the ex-dividend day? When was the last day an investor could have purchased ABC stock and still received the dividend payment?

3. RFC Corp. has announced a $1 dividend. If RFC's last price while trading cum-dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)? ECB Co. has 1 million shares outstanding selling at $20 per share. It plans to repurchase 100,000 shares at the market price. What will its market capitalization be after the repurchase? What will its stock price be?

4. Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. If you pay no premium to buy TargetCo, what will be your earnings per share after the merger?

Suppose you offer an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will be your earnings per share after the merger?

What explains the change in earnings per share in (a)? Are your shareholders any better or worse off?

What will be your price-earnings ratio after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo's premerger P/E ratio?

5. If companies in the same industry as TargetCo (from Problem 4) are trading at multiples of 14 times earnings, what would be one estimate of an appropriate premium for TargetCo?