Apex Corporation is considering the purchase of Pinnacle Company in a stock-forstock exchange. Selected data on the two companies are shown in the following table:
|
Apex |
Pinnacle |
| Sales(millions) |
$750 |
$175 |
| Earning after taxes(millions) |
$100 |
$20 |
| Common share outstanding(millions) |
50 |
20 |
| Share Price |
$40 |
$15 |
| Earning per share |
$2.00 |
$1.00 |
| Dividend per share |
$1.00 |
$0.40 |
| P/E ratio |
20 |
15 |
| Dividend payout ratio |
50% |
40% |
Assume that there are no synergistic benefits as the result of the merger. Determine EPS for the combined company if Apex offers a
a. 20 percent premium for Pinnacle
b. 40 percent premium for Pinnacle
c. 50 percent premium for Pinnacle.