Financial statements for arden cosmetics and pia’s perfume

Below are the financial statements for Arden Cosmetics and Pia’s Perfume.

Arden is considering two alternative approaches to making the acquisition of Pia: share-for-share exchange or cash purchase. Assume the following:

The $6 billion cost of purchasing Pia at $30 per share would be financed by debt with a 10%interest rate.

All asset and liabilities of Pia have fair market value equal to their balance sheet values expect property, plant, and equipment, which have a fair market value of $2.4 billion. Pia depreciates its property, plant, and equipment over 10 years using the straight line method.

The marginal tax rate is 40%.

Part a.

Assume Arden uses a share-for-share exchange to acquire Pia and accounts for the transaction as a pooling-of-interests:

i. Prepare a pro forma December 31, 2006 balance sheet for Arden reflecting the acquisition and calculate the resulting book value per share.

ii. Prepare a pro forma estimated 2007 income statement for Arden reflecting the acquisition, and calculate the resulting earnings per share.

Part b.

Assume Arden pays $30 cash per share to acquire 100 percent of the common stock of Pia and accounts for the transaction as a purchase.

i. Prepare a pro forma December 31, 2006 balance sheet for Arden reflecting the acquisition and calculate the resulting book value per share.

ii. Prepare a pro forma estimated 2007 income statement for Arden reflecting the acquisition, and calculate the resulting earnings per share.

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