The following data on a merger are given: $\begin{array} { l c l l }
& \text { Firm A } & \text { Firm B}&\text { Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$ 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 are given: $\begin{array} { l c l l } 
& \text { Firm A } & \text { Firm B}&\text {  Firm AB }  \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$ 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

We can begin by calculating the new total value of Firm B after the acquisition:

Number of shares outstanding: 40
Acquisition price per share: $20
Total value after acquisition: 40 x $20 = $800

Now, we can calculate the new total value of the merged company (Firm AB):

Total value before acquisition: $11,000
Value of Firm B after acquisition: $800
Total value after acquisition: $11,800

Next, we can calculate the new earnings for the merged company:

Total earnings before acquisition: $500 + $300 = $800
New total earnings after acquisition: $800 (Firm A) + $300 (Firm B) = $1,100

Finally, we can calculate the new earnings per share for Firm A:

New total earnings for Firm A: $800
Number of shares outstanding: 100
New earnings per share for Firm A: $800/100 = $8

Therefore, the answer is (C) $8.

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