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Online Educ has an EPS of £3, with 14 million shares outstanding
Online Educ has an EPS of £3, with 14 million shares outstanding. It is thinking of acquiring ClassRoom that has an EPS of £2, with 2 million shares outstanding. Assume that OnlineEduc needs to issue 890,000 stocks to buy ClassRoom. What would be the earnings per share (EPS) after the deal?
Select one:
a. 2.72
b. 3.29
c. 15.92
d. 3.09
Expert Solution
Solution:
OnlineEduc :
No of shares = 14 million
EPS = £ 3
Hence earnings = EPS x no of shares
= £3 x 14 million
= £42 million
Classroom:
Total number of shares = 2 million
EPS = £2
Hence total earnings = £2 x 2 million
= £4 million
Combined earnings after deal :
=£ 42 million +£ 4 million
= £46 million
Shares issued to buy Classroom = 0.89 million
Hence combined number of shares after deal:
= 14 million + 0.89 million
= 14.89 million
Earning per share after deal i.e. combined EPS = Combined earnings/combined number of shares
=£ 46 million/14.89 million
= £3.09
Hence Earning per share after the deal will be £3.09
Thus the correct option is d i.e. 3.09
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