When the ratio of exchange in a merger is equal to one and both the acquiring and the target companies have the same premerger earnings per share, both the acquiring and the target companies have the same ________.
A) debt ratio
B) book value per share
C) return on equity
D) P/E ratio

Question

Quizplus · Accepted Answer

When the ratio of exchange in a merger is equal to one and both companies have the same premerger earnings per share (EPS), it implies that they also have the same price-to-earnings (P/E) ratio. This is because the P/E ratio is calculated by dividing the market price per share by the earnings per share. If the earnings per share are the same and the exchange ratio is one, it suggests that their market valuations in terms of P/E are aligned.

When the Ratio of Exchange in a Merger Is Equal