Consider the following premerger information about Firm A and Firm B: 

Assume that Firm A acquires Firm B via an exchange of stock at a price of $13 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? 

b. What will Firm A’s price per share be after the merger if the market incorrectly analyzes this reported earnings growth (i.e., the price-earnings ratio does not change)? 

c. What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? 

d. If there are no synergy gains, what will the share price of A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low? Explain.

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Firm A Firm B Total earnings $2,100 $750 Shares outstanding Price per 900 300 share 60 $ 12 %24