What is Reardon's price-earnings ratio after the takeover?
A)$1.85
B)$1.90
C)$2.00
D)$2.25

Question

Quizplus · Accepted Answer

B)Value of Associated Steel = $15 per share × 4 million shares = $60 million.Therefore Rearden will have to issue $60 million/$20 per share = 3 million new shares to fund the deal.This will give Rearden 10 + 3 = 13 million shares post merger.The earnings for Rearden premerger = $2 per share × 10 million shares = $20 million and the earnings for Associated steel pre-merger are $1.25 per share × 4 million shares = $5 million.Therefore the post-merger earnings for Rearden are $20 + $5 = $25 million and the EPS = $25 million/13 million shares = $1.92.

What Is Reardon's Price-Earnings Ratio After the Takeover