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Big Co. would like to buy Small Co. for a 25% premium. Currently Big Co.'s stock price is $33.24, its EPS is $2.98 and it has 75mm shares...
Big Co. would like to buy Small Co. for a 25% premium. Currently Big Co.'s stock price is $33.24, its EPS is $2.98 and it has 75mm shares outstanding. Currently Small Co.'s stock price is $22.50 (before premium), its EPS is $2.35 and it has 19mm shares outstanding. Big Co.'s cost of debt is 5.5% and its tax rate is 35%.
4. If Big Co. uses stock to acquire Small Co. what would Big Co.'s proforma EPS be?
A) $3.58.
B) $3.27.
C) $2.94.
D) $2.83.
5. If Big Co. uses debt to acquire Small Co. what would Big Co.'s proforma EPS be?
A) $3.58.
B) $3.32.
C) $3.23.
D) $3.18.
6. What is the maximum price Big Co. can pay before the deal becomes dilutive if it acquires Small Co. with debt?
A) $65.73
B) $65.35.
C) $64.64.
D) $64.62
