Alpha is planning on merging with Beta. Alpha will pay Beta's shareholders the current value of their stock in shares of Alpha. Alpha currently has 6,500 shares of stock outstanding at a market price of $44 a share. Beta has 2,100 shares outstanding at a price of $22 a share. The post-merger earnings will be $10,400. What will the earnings per share be after the merger?
A) $1.43
B) $1.38
C) $1.25
D) $1.51
E) $1.16

Question

Quizplus · Accepted Answer

First, we need to find the total value of Beta's shares that will be paid in Alpha shares. Beta's shares are worth $22 * 2,100 = $46,200. To pay this, Alpha will issue 46,200 / 44 = 1,050 new shares.
After the merger, Alpha will have 6,500 + 1,050 = 7,550 shares outstanding.
The post-merger earnings per share will be $10,400 / 7,550 = $1.38. Therefore, the best choice is B.

Alpha Is Planning on Merging with Beta