Venus, Inc. wishes to evaluate a proposed merger into the Mars, Inc. Venus had 2012 earnings of $250,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 9%. Mars had 2012 earnings of $900,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 4% per year. Prepare a spreadsheet for the results you obtained in part a and part b
a. Calculate the expected earnings per share (EPS) for Venus for each of the next 5 years (2013- 2017) without the merger.
b. What would Venus shareholders earn in each of the next 5 years (2013-2017) on each of their Venus shares swapped for Mars shares at a ratio of 0.4 share of Mars for 1 share of Venus?
c. Graph the premerger and postmerger EPS figures developed in parts a and b with the year on the x axis and the EPS on the y axis.
d. Based on the above information/calculation, as the financial manager of Venus, will you recommend the merger into Mars?