Home / Questions / Consider the following premerger information about Firm A and Firm B: Firm A Firm B Tot
Consider the following premerger information about Firm A and Firm B: 
Firm A 
Firm B 

Total earnings 
$2,100 
$800 
Shares outstanding 
900 
200 
Price per share 
$27 
$31 
Assume that Firm A acquires Firm B via an exchange of stock at a price of $33 for each share of B's stock. Both A and B have no debt outstanding. 
A. What will the earnings per share, EPS, of Firm A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
B. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the priceAc€?oearnings ratio does not change)? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
C. What will the priceAc€?oearnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
D. If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
E. What will the priceAc€?oearnings ratio be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
F. What does your answer for the share price tell you about the amount A bid for B? Was it too high or too low? 
Dec 03 2019 View more View Less
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