Primrose Ltd. is considering a new issue of common shares to implement a share for share exchange to acquire 100% ownership of Avalanche Industries. Primrose has 5 million shares outstanding and Avalanche has 2,500,000 shares outstanding. Primrose's net income after tax is $50 million. Avalanche industries has a net income after tax of $8 million. The merger will result in

Question

Quizplus · Accepted Answer

To determine the impact of the merger on diluted earnings per share, we need to calculate the combined net income after tax and the number of shares outstanding after the share exchange.

Combined net income after tax = $50 million + $8 million = $58 million

Number of shares outstanding after the share exchange = 5 million + 2.5 million = 7.5 million

Diluted earnings per share for Primrose = $50 million / 5 million = $10.00

Diluted earnings per share for Avalanche = $8 million / 2.5 million = $3.20

Therefore, the correct answer is C) Diluted earnings per share of $7.73 a share for Primrose (rounded to two decimal places).