Essex Industries Is Considering the Acquisition of Twinsburg Company in a Stock-For-Stock

Multiple Choice

Essex Industries is considering the acquisition of Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001. ? $\begin{array}{lrr} & \text { Essex } &{\text { Twinsburg }} \\\text { Sales } & \$ 500 \text { million } & \$ 50 \text { million } \\\text { Net income } & \$ 40 \text { million } & \$ 3.74 \text { million } \\\text { Common shares outstanding } & 5 \text { million } & 1 \text { million }\\\text { Earnings per share } & \$ 8.00 & \$ 3.74 \\\text { Dividends per share } & \$ 3.00 & \$ 1.00 \\\text { Common stock market price } & \$ 64 & \$ 24 \\\text { Pricelearnings ratio } & 8 & 6.42\end{array}$ ?
EPS = $43,740,000/5,400,000 = $8.10
?
What is Essex's post-merger share price if the post-merger price/earnings ratio is 7.5, and the exchange ratio is 0.4? Assume total post-merger earnings are $43,740,000.

A) ?$60.75
B) ?$54.98
C) ?$64.80
D) ?$30.42