A number of firms, especially in the United States, have had to lower their previously reported earnings due to accounting errors or fraud. Assume that Modern American (problem 7) had to lower its earnings to $5,000,000 from the previously reported $10,000,000. What might be its new market value prior to the acquisition? Could it still do the acquisition?

If earnings were lowered to $5 million from the previously reported $10 million, could Modern American still do the deal?

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Market value of shares er share Total Market Value Number Company P/E ratio EPS Modo Unico Modern American 20 10,000,000 20.00 10,000,000 S1.00 40 10,000,000 20.00 5,000,000 S1.00 200,000,000 200,000,000