Assume the following financial data for the Wolf Corporation and Lamb Enterprises.

a. If all the shares of the Wolf Corporation are exchanged for shares of the Lamb Enterprises on a share-for-share basis, what will post merger EPS be for Lamb Enterprises? Use an approach similar to Table 20-4.

Table 20-4

Total earnings: Small ($200,000) + Expand ($500,000).................. $700,000

Shares outstanding in surviving corporation:
Old (200,000) + New (50,000) ..................................................... . . 250,000

New EPS for Expand Corporation = $700,000/250,000 = $2.80

b. Explain why the EPS of Lamb Enterprises changed.
c. Can we necessarily assume that Lamb Enterprises is better or worse off?

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Lamb Wolf Corporation Enterprises Total earnings Number of shares of stock EPS ... $125,000 $500,000 ... .. outstanding 100,000 500,000 $1.00 $1.25 P/E ratio... 16x 20x Market price per share. $20.00 $20.00