a.
Total earnings Minnie ($800,000) + Mickey ($1,600,000) =$2,400,000
Shares outstanding in surviving company:
The Mickey Corp. Old (800,000) + New (200,000) = 1,000,000
New Earning Per Share = Net Income / Share Outstanding
= $ 240,000 /1,000,000
=$ 2.40
B
| market price of Minnie | 40 |
| (25% premium) | 1.25 |
| (40 *1.25) | 50 |
| exchange value | 50 |
| shares | 200000 |
| total price | 10,000,000 |
Share issued = Total Price / Market Price
= $ 10,000,000 / 40
=250,000 ( Mickey)
Also, 1.25 × 200,000 Minnie shares = 250,000 Mickey shares. This shortcut approach may also be used because the shares have an equal price before the merger.
c
Total earnings Minnie ($800,000) + Mickey ($1,600,000) =$ 2400,000
Shares outstanding in surviving company:
The Mickey Corp. Old (800,000) + New (250,000)
= 1,050,000
New Earning Per Share = Net Income / Share Outstanding
= $ 240,000 /1,050,000
=$ 2.29
D
| market price of Minnie | 40 |
| (25% premium) | 2 |
| (40 *1.25) | 80 |
| exchange value | 80 |
| shares | 200000 |
| total price | 16,000,000 |
Total earnings: $2,400,000 × 1.25 =$ 300000
Shares outstanding in surviving company:
The Mickey Corp. Old (800,000) + New (400,000) = 1,200,000
New Earning Per Share = Net Income / Share Outstanding
= $ 300,000 /1,200,000
=$ 2.50
