3. Alpha Inc has earnings per share of $2 and 10 million outstanding shares trading at $20 each.It is considering the acquisition of Gamma Plc. Gamma Plc, on the other hand, has earnings pershare of $1.25 with 4 million shares outstanding, each traded at $15. To acquire Gamma Plc,Alpha Inc plans to issue new shares, all without anticipating any synergies resulting from thetransaction.a. If Alpha acquires Gamma without paying any premium, what will be the earnings per sharefollowing the merger?b. If Alpha proposes an exchange ratio resulting in a 20% premium based on the current pre-announcement share prices of both firms to acquire Gamma, calculate the per-share price ofthe combined company post-merger.c. If Alpha proposes an exchange ratio such that, at the current pre-announcement share pricesof both firms, the offer indicates a 20% premium to acquire Gamma, determine the exactpremium that Alpha pays for the transaction.d. Discuss some of the uncertainties in merger analysis. How can real option analysis beemployed in valuing a merger?

a. Earnings Per Share Following the MergerGiven:Alpha Inc:Earnings per share Following the…

Answered: 3. Alpha Inc has earnings per share of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 3P

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Honesty Company started negotiating for the acquisition of Integnity Company. The offer was for shareholders of Integrity to receive one Honesty share with a market value of P125 for every four shares held in exchange for all assets of Integrity (except shares in listed companies). In addition to the shares, Honesty will transfer its shares in listed companies which has a fair market value of P750,000. Honesty will also pay integrity sufficient cash to enable Integrity to pay all its creditors then Integrity will liquidate. The shareholders of Integrity accepted the offer. The Balance Sheet on December 31, 2020 is given below (see image below). The net assets of Integrity are reflected at their fair values except for the following: Inventory, P1,300,000 fair market value Land and building, P4,000,000 fair market value Shares in listed companies, P900,000 fair market value How much is the total assets of Honesty after the merger? Honesty 7,250,000 1,700,000 2,800,000 800,000 3,500,000…
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