Cordage Company is considering the acquisition of Yawitz Wire and Mesh
Corporation with common stock. Relevant financial information is as follows:
plans to offer a premium of 20 percent over the market price of Yawitz stock.
a. What is
the ratio of exchange of stock? How many new shares will be issued?
b. What are
earnings per share for the surviving company immediately following the merger?
c. If the
price/earnings ratio for Yablonski stays at 12, what is the market price per
share of the surviving company? What would happen if the price/earnings ratio
went to 11?
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