Question

The following information is given about an acquiring firm XYZ Ltd and acquired firm ABC Ltd. XYZ Ltd ABC Ltd XYZ Ltd Before merger After merger Profit after tax (Kshs) 403 83 486 Number of shares 157.50 25 168.30 Earnings per share (EPS) 2.56 3.32 2.89 Market value per share 57.80 24.90 57.80 Price earnings ratio 22.58 7.50 20.00 Total market capitalization 9, 104 622.50 9, 726. 50 3 (i). From your own observations, what do you

Answer 1

When two firms merge, it can reduce competition between them. In this case, the acquiring firm XYZ Ltd and the acquired firm ABC Ltd have merged.

Step-by-step explanation:

When two firms merge, it can reduce competition between them. In this case, the acquiring firm XYZ Ltd and the acquired firm ABC Ltd have merged. Before the merger, XYZ Ltd had a profit after tax of Kshs 403 and EPS of 2.56, while after the merger, their profit after tax increased to 486 and EPS increased to 3.32. The number of shares also increased from 157.50 to 168.30. The market value per share of XYZ Ltd remained the same at 57.80, but the price earnings ratio decreased from 22.58 to 7.50. Finally, the total market capitalization increased from 9,104.622.50 to 9,726.50.