The earnings per share of a merged firm are generally above the premerger earnings per share of one firm and below the premerger earnings per share of the other, after making the necessary adjustment for the ratio of exchange.

Question

Quizplus · Accepted Answer

Earnings per share of the merged firm can be higher than the premerger EPS of one firm due to the synergy and cost savings resulting from the merger. However, it is unlikely that the EPS of the merged firm will be higher than the premerger EPS of both firms combined. Therefore, the EPS of the merged firm is generally higher than one firm and lower than the other, after adjusting for the exchange ratio.

The Earnings Per Share of a Merged Firm Are Generally