Acquiring company is considering the acquisition of target company in a stock for stock transaction in which target company would receive $50.00 for each share of its common stock. the acquiring company does not expect any change in its price/earnings multiple after the merger.

acquiring co. target co.

earnings available for common stock $150,000 $30,000

number of shares of common stock outstanding $60,000 $20,000

market price per share $60.00 $40.00

using the information provided above on these two firms and showing your work, calculate the following:

1) what is the share exchange ratio?

2) how many new shares will be issued by acquiring company?

3) what is the post-merger eps of the combined company?

4) what is the post-merger share price of the combined company?

5) if the purchase is using 100% cash and all the cash is borrowed at an annual rate of 8%, what is post-merger eps of the combined company, assuming the tax rate is 40%?