The following facts apply to two companies, A and B, whose operations are completely independent. A...

 

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The following facts apply to two companies, A and B, whose operations are completely independent. A B P/E 20 Eamings per share Shares outstanding $1 $2 10,000,000 1,000,000 Assume that A acquires B in exchange for 500,000 shares of common stock. a. What will be the new earnings per share (EPS) for A? b. What would you expect the new P/E of A (after acquisition) to be? Assume a rational market. c. What will be the total market value of A's common stock after the acquisition? Assume a rational market. The following facts apply to two companies, A and B, whose operations are completely independent. A B P/E 20 Eamings per share Shares outstanding $1 $2 10,000,000 1,000,000 Assume that A acquires B in exchange for 500,000 shares of common stock. a. What will be the new earnings per share (EPS) for A? b. What would you expect the new P/E of A (after acquisition) to be? Assume a rational market. c. What will be the total market value of A's common stock after the acquisition? Assume a rational market.

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