A Corporation is considering the acquisition of X Corporation. Each corporation

Question

A Corporation is considering the acquisition of X Corporation. Each corporation has the following data: Existing Income $4,200,000 Number of Shares A Corporation 621,000; Existing Income X Corporation $2,200,000 Number of Shares 365,000 Synergistic additional benefits from the combination are $1,200,000. What is the minimum exchange ratio is necessary to keep the X shareholders whole in terms of earnings per share? What is the maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share? (note you will need to use the formulas in the book to solve this)

Explanation / Answer

What is the minimum exchange ratio is necessary to keep the X shareholders whole in terms of earnings per share?

Minimum Exchange Ratio = .2395           

What is the maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share? (note you will need to use the formulas in the book to solve this)

Maximum Exchange Ratio = 1.3773

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