Suppose Company XYZ is considering purchasing shares of Company ABC. ABC has 30 million shares outstanding and trades at $60 per share on January 1, 2015. ABC shares trade at $62 per share as of December 31, 2015 and pay a dividend of $1 per share in 2015. Net income of ABC for 2015 is $4 per share ($120 million in total).
On January 1, 2010, XYZ purchases 25 million shares of ABC for $1.5 billion in cash. Assume that ABC still earns $120 million, but assume it no longer pays a dividend. (Ignore any effects on total assets for this problem).
Effect on 2015:
Pretax Income: $____________ Total Shareholder’s Equity: $____________