Task:
Assume the following financial data for the Baker Corp and Howell Enterprises
Baker Howell
Total Earnings 400,000 1,200,000
# of shares of stock outstanding 200,000 1,000,000
Earnings Per Share $2 $1.20
Price Earnings Ratio 12X 20X
Market Price per share $24 $24
Q1. If all shares of Barker Corporation are exchanged for those of Howell Enterprises on a share for share basis, what will post merger earnings per share be for Howell Enterprises? Use an approach similar to the table.
Q2. Explain why earnings per share of Howell Enterprises changed
Q3. Can we necessarily assume that Howell Enterprises is better off or worse off?