Endevco is considering the acquisition of Geothermal Resources in a stock-for-stock exchange.Assume no immediate synergistic benefits are expected.Selected financial data on the two companies are shown below:

If Endevco is not willing to incur an initial dilution in its EPS, and if Endevco also feels that it will have to offer Geothermal shareholders a minimum of 20% over Geothermal's current market price, what is the maximum price per share that Endevco will have to pay for Geothermal's stock?
A)$57.60
B)$64.33
C)$52.23
D)$60.00

Question

Endevco is considering the acquisition of Geothermal Resources in a stock-for-stock exchange.Assume no immediate synergistic benefits are expected.Selected financial data on the two companies are shown below:

If Endevco is not willing to incur an initial dilution in its EPS, and if Endevco also feels that it will have to offer Geothermal shareholders a minimum of 20% over Geothermal's current market price, what is the maximum price per share that Endevco will have to pay for Geothermal's stock?
A)$57.60 
B)$64.33 
C)$52.23 
D)$60.00

Quizplus · Accepted Answer

Pmₐₓ = (70/5.80)(5.33) = $64.33

Endevco Is Considering the Acquisition of Geothermal Resources in a Stock-For-Stock