Koala Technologies Is Considering the Acquisition of Laser Industries in a Stock-For-Stock

question 52

Multiple Choice

Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange. Selected financial data for the two companies is shown below. An immediate synergistic earnings benefit of $2.5 million is expected in this merger. $$\begin{array} { l r r } & \text { Koala } & \text { Laser } \\\text { Sales (millions) } & \$ 90 & \$ 10 \\\text { Net income (millions) } & \$ 9.4 & \$ 1.2 \\\text { Common shares outstanding (millions) } & 4.0 & 0.8 \\\text { Earnings per share } & \$ 2.35 & \$ 1.50 \\\text { Common stock (price per share) } & \$ 35.00 & \$ 27.00\end{array}$$ ? Calculate the postmerger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange.

• A) $2.21
• B) $2.25
• C) $2.75
• D) $2.23

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Definitions:

Market Conditions

The various factors that influence the demand for and supply of products or services within a market.

Dollar Terms

The practice of expressing or measuring financial transactions, values, or performance in units of the U.S. dollar.

Markup

The amount added to the cost price of goods to cover overhead and profit.

Markdown

A reduction from the original or listed price of an item, often used as a strategy to increase sales or clear out inventory.