Ratio of exchange and EPS Marla\'s Cafe is attempting to acquire the Victory Clu
ID: 2800522 • Letter: R
Question
Ratio of exchange and EPSMarla's Cafe is attempting to acquire the Victory Club. Certain financial data on these corporations are summarized in the following table. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Item
Marla's Cafe
Victory Club
Earnings available for common stock
$40 comma 00040,000
$5 comma 5005,500
Number of shares of common stock outstanding
20 comma 00020,000
7 comma 0007,000
Market price per share
$1717
$3333
Marla's Cafe has sufficient authorized but unissued shares to carry out the proposed merger. If the ratio of exchange is
22,
what will be the earnings per share (EPS) based on the original shares of each firm?
The EPS for Marla's original shareholders after the merger is
$nothing.
(Round to three decimal places.)
Item
Marla's Cafe
Victory Club
Earnings available for common stock
$40 comma 00040,000
$5 comma 5005,500
Number of shares of common stock outstanding
20 comma 00020,000
7 comma 0007,000
Market price per share
$1717
$3333
Explanation / Answer
Calculation of Earnings per share: Particulars Marla's Café Victory Club Earnings ($) 40000 5500 Nimber of shares 20000 7000 Earnings per share ($) (Earnings/Number of shares) 2 0.785714286 Calculation of EPS after merger: Exchange ratio 2 Number of shares to be issued 14000 (7000*2) Total Number of shares in Marla's Café 54000 Earnings after merger 27000 (20000+7000) Earnings per share 0.5 (27000/54000)
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