Certainly! Let’s break down the information in your image step by step: --- # 1. **Scenario Summary** - **Acquirer buys Target**: Company A (Acquirer) is purchasing Company T (Target) for $3,000 in cash. - **Shares Outstanding**: Acquirer has 1,000 shares; Target has 800 shares. - **Earnings per Share (EPS)**: Acquirer $.94, Target $.93. --- # 2. **Income Statement** | | Acquirer | Target | |----------------------|----------|--------| | **Sales** | $4,200 | $2,700 | | **Operating Expenses**| -$2,900 | -$1,800| | **Interest Expense** | -$300 | -$240 | | **Interest Income** | $200 | $ | | **Earnings before tax**| $1,200 | $660 | | **Taxes** | -$384 | -$211.2| | **Earnings** | $816 | $448.8 | - **Earnings per share**: - Acquirer: $816 / 1,000 = $.82 - Target: $448.8 / 800 = $.56 --- # 3. **Balance Sheet** | | Acquirer | Target | |----------------------|----------|--------| | **Assets** | $10,000 | $5,000 | | **Debt** | $2,000 | $1,000 | | **Equity** | $8,000 | $4,000 | --- # 4. **What’s Happening in the Scenario** - **Acquirer buys Target for $3,000 cash.** - **Target’s shareholders are paid $3,000 total for their shares.** - **Acquirer uses either cash or debt to fund the purchase.** --- # 5. **Key Concepts** ### **A. Purchase Price** - Acquirer pays $3,000 for 800 shares, which is $3.75 per share. ### **B. Earnings Per Share (EPS)** - EPS is calculated as Net Earnings / Shares Outstanding. ### **C. Balance Sheet Impact** - After acquisition, Acquirer’s assets drop by $3,000 (if paid in cash), or debt increases if borrowed. - Target’s assets/liabilities/equity are consolidated into Acquirer’s balance sheet. ### **D. Synergies and Adjustments** - Sometimes, mergers create synergies (cost savings, revenue increases). - Interest expenses may increase if debt is used for purchase. --- # 6. **Example Questions You Might Be Asked** **a. What is the combined EPS after the acquisition?** - Combine earnings, adjust for interest if debt is used, divide by new shares outstanding. **b. What is the book value per share post-acquisition?** - Combine equity, divide by new shares outstanding. **c. What happens to the balance sheet?** - Add assets/liabilities from Target; subtract purchase cash or add acquisition debt. --- ## **If you have a specific question about the numbers or a calculation, let me know!**

# Solution Summary ## 1. **Merger Overview** - **Acquirer**: Company A - **Target**: Company T - **Purchase Price**: $3,000 in cash ## 2. **Financial Highlights** ### A. **Income Statement** | | Acquirer | Target | |----------------------|----------|--------| | **Earnings** | $816 | $448.8 | ### B. **EPS Calculation** - **Acquirer EPS**: \[ \text{EPS} = \frac{816}{1,000} = 0.82 \] - **Target EPS**: \[ \text{EPS} = \frac{448.8}{800} = 0.56 \] ### C. **Balance Sheet Overview** | | Acquirer | Target | |----------------------|----------|--------| | **Assets** | $10,000 | $5,000 | | **Equity** | $8,000 | $4,000 | ## 3. **Key Points** - The Acquirer pays $3.75 per Target share. - Consolidation of financials will occur post-acquisition, affecting EPS and book value. ## 4. **Potential Questions** - How does the acquisition impact combined EPS? - What changes occur in the balance sheet? This summary encapsulates the essential details of the acquisition scenario. If you need further clarification or specific calculations, feel free to ask!

# Primary Objective of Financial Management The primary objective of financial management is: ### C. **Maximizing Shareholders' Wealth** --- ## Explanation - **Maximizing Shareholders' Wealth**: This involves increasing the value of the company’s stock and ensuring a good return on investment for shareholders. It encompasses not just profits, but also risk management and long-term growth. ### Why Not the Others? - **A. Maximizing Sales**: While sales growth is important, it doesn’t necessarily lead to increased shareholder wealth if costs are too high. - **B. Maximizing Profit**: Similar to sales, profit maximization can overlook other factors such as cash flow and risk. - **D. Minimizing Costs**: Cost reduction is a tactic, not a goal. It needs to align with overall strategic objectives to enhance shareholder value. --- ## Conclusion In summary, the focus on maximizing shareholders' wealth ensures a balanced approach to profitability, risk, and long-term sustainability.