The shareholders of Creed Security Company have voted in favor of a buyout offer from What If Corporation. Information about each firm is given here:

Creed’s shareholders will receive one share of What If stock for every three shares they hold in Creed.

a. What will the EPS of What If be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?

b. What must What If feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover.

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Price-earnings ratio Shares outstanding Earnings Creed 5.25 60,000 $300,000 What If 21 180,000 $675,000