08 Jan The management of Pratt Engineering Company had ag
The management of Pratt Engineering Company had agreed in principle to a proposal from Hardin Tool Company to acquire all its stock in exchange for Hardin securities. The two managements were in general agreement that Hardin would issue 100,000 shares of its authorized but unissued stock in exchange for the 40,000 shares of Pratt common stock. Hardin’s investment banking firm had given an opinion that a new public offering of 100,000 shares of Hardin common stock could be made successfully at $8 per share. Questions 1. Prepare consolidated balance sheets as of the proposed acquisition date, assuming the exchange of 100,000 shares of Hardin common stock on a purchase basis. 2. Assuming that in its first year of operations the combined company would achieve the same results of operations as the sum of the two firms’ independent operations, what would be the combined company’s net income and earnings per share on a pooling basis? (Assume plant and equipment life of 10 years, straight-line depreciation, and an income tax rate of 35 percent. Round results-except earnings per share-to the nearest thousand dollars.) 3. What would be the combined net income and earnings per share under (a) the preferred stock package and (b) the debenture package? Is either of these proposals preferable to the all-common-stock proposal? View Solution: The management of Pratt Engineering Company had agreed in principle
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