Use the Information for the Question(s)below

question 30

Essay

Use the information for the question(s)below.
Martin Manufacturing has earnings per share (EPS)of $3.00,5 million shares outstanding,and a share price of $32.Martin is considering buying Luther Industries,which has earnings per share of $2.50,2 million shares outstanding,and a share price of $20.Martin will pay for Luther by issuing new shares.There are no expected synergies from the transaction.
-Assume that Martin pays no premium to acquire Luther.Calculate Martin's price-earnings (P/E)ratio both pre- and post-merger.

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Definitions:

Margin of Safety

The difference between actual or expected sales and sales at the break-even point.

Sales Revenue

The income received by a company from its sales of goods or services, before any expenses are deducted.

Unit Selling Price

The price levied for an individual unit of a product or service.

Break-even Analysis

A financial calculation to determine the sales volume at which a business neither makes a profit nor a loss.