The following data on a merger is given: $$\begin{array} { l c l l }
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.What will earnings per share be for Firm A after the merger assuming that cash is used in the acquisition?
A)$6
B)$7
C)$8
D)$5

Question

The following data on a merger is given: $$\begin{array} { l c l l } 
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.What will earnings per share be for Firm A after the merger assuming that cash is used in the acquisition?
A)$6
B)$7
C)$8
D)$5

Quizplus · Accepted Answer

After the merger, Firm A will pay $20 per share for Firm B's 40 shares, costing $800. The total earnings of Firm AB will be $500 (Firm A) + $300 (Firm B) = $800. The new number of shares outstanding for Firm A will be 100 (original) + 0 (since cash is used, no new shares are issued) = 100. Earnings per share (EPS) for Firm A after the merger will be $800 / 100 = $8.

The Following Data on a Merger Is Given Firm a Has Proposed to Acquire Firm B at a l