Shares of Bongo Ltd have an EPS of $2.00,and shares of Congo Ltd have an EPS of $1.00.If both companies have 100 shares and Bongo acquires Congo,what will be the EPS for the new combined entity if Bongo issues one share for every Congo share?
A)3.00
B)1.00
C)2.00
D)1.50

Question

Quizplus · Accepted Answer

Before the acquisition, Bongo had an EPS of $2.00 and Congo had an EPS of $1.00.

After the acquisition, there will be 200 shares in total (100 from Bongo and 100 from Congo).

Bongo will be issuing one share for every Congo share, so there will be 100 new Bongo shares issued.

So, the new total earnings will be the sum of the earnings from Bongo and Congo before the acquisition plus the earnings from the new Bongo shares issued:

Total earnings = (100 shares x $2.00 EPS) + (100 shares x $1.00 EPS) + (100 new shares x $0.00 EPS) 
Total earnings = $200 + $100 + $0 
Total earnings = $300

The new EPS can be calculated by dividing the total earnings by the new total number of shares:

New EPS = Total earnings / Total number of shares 
New EPS = $300 / 300 shares 
New EPS = $1.50

Therefore, the EPS for the new combined entity will be $1.50. Answer choice D is correct.

Shares of Bongo Ltd Have an EPS of $2