EPS and postmerger price

Data for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging.

Item Henry Company Mayer Services

Earnings available for common stock $225,000 $50,000

Number of shares of common stock outstanding 90,000 15,000

Market price per share $45 $50

a.Calculate theratio of exchangein market price.

b.Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company.

c.Calculate the price/earnings (P/E) ratio used to purchase Mayer Services.

d.Calculate thepostmerger earnings per share (EPS)for Henry Company.

e.Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in parta.