Martin Manufacturing Has Earnings Per Share (EPS)of $3

question 75

Essay

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:

Administrative Expense

Costs related to the general administration of a business, such as salaries of executive officers and costs of general services.

Estimated

An approximate calculation or judgment of a value, number, or quantity, based on limited information.

Selling and Administrative Expense

Overheads related to the selling of products and the management of an organization.

Variable

An element, feature, or factor that is liable to vary or change.