If the P/E paid is greater than the P/E of the acquiring company, the effect on the earnings per share of the acquired company will be ________.
A) positive
B) neutral
C) negative
D) unrelated

Question

Quizplus · Accepted Answer

The P/E paid is the price paid for each share of the acquired company divided by the earnings per share of the acquired company. The P/E of the acquiring company is the price paid for each share of the acquiring company divided by the earnings per share of the acquiring company. If the P/E paid is greater than the P/E of the acquiring company, then the acquiring company is paying a higher price for each dollar of earnings of the acquired company. This will result in a lower earnings per share for the acquired company.

If the P/E Paid Is Greater Than the P/E of the Acquiring