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Problem Use the following formula to answer problems on shareholder returns, where P is the share price at time t, and Dt is the dividend paid at time t. D, P Shareholder Return Fashion Acquisitions. During the 1960s, many conglomerates were created by firms that were enjoying a high price/earnings ratio (PIE). These firms then used their highly valued st to acquire other firms that had lower P/Eratios, usually in unrelated domestic industries. Conglomerates went out of fashion during the 1980s when they lost their high P/E ratios, thus making it more difficult to find other firms with lower PIE ratios to acquire. Market Total Market PIE Number of Company Value per Earnings EPS Ratio Shares Value Share 10,000,000 $20.00 $10,000,000 $1.00 $200,000,000 ModoUnico 20 Modern 10,000,000 $40.00 $10,000,000 $1.00 $400,000,000 40 American During the 1990s, the same acquisition strategy was possible for firms located in countries where high P/E ratios were common compared to firms in other countries where low P/E ratios were common. Consider the hypothetical firms in the pharmaceutical industry shown in the table at the top of the page Modern American wants to acquire ModoUnico. It offers 5,500,000 shares of Modern American with a current market value of $220,000,000 and a 10% premium on ModoUnico's shares, for all of ModoUnico's shares. a. How many shares would Modern American have outstanding after the acquisition of ModoUnico? b. What would be the consolidated earnings of the combined Modern American and ModoUnico? C. Assuming the market continues to capitalize Modern American's earnings at a P/E ratio of 40, what would be the new market value of Modern American