(Solution) - George Sons wishes to evaluate a proposed merger into -(2025 Original AI-Free Solution)

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George & Sons wishes to evaluate a proposed merger into the RCN Group. George had 2012 earnings of US$200,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7 percent. RCN had 2012 earnings of US$800,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3 percent per year.
a. Calculate the expected earnings per share (EPS) for George & Sons for each of the next 5 years (2013-2017) without the merger.
b. What would George's stockholders earn in each of the next 5 years (2013-2017) on each of their George shares swapped for RCN shares at a ratio of (1) 0.6 and (2) 0.8 share of RCN for 1 share of George?
c. Graph the premerger and post merger EPS figures developed in parts a and b with the year on the x axis and the EPS on the y axis.
d. If you were the financial manager for George & Sons, which would you recommend from part b, (1) or (2)? Explain your answer.