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

Question

Quizplus · Accepted Answer

If the P/E paid for a target company is greater than the P/E of the acquiring company, it means that the acquiring company paid a higher price for the earnings of the target company. This results in dilution of the earnings per share (EPS) of the acquiring company, as it now has to share a portion of its earnings with the shareholders of the target company. Hence, the effect on the EPS of the acquiring company will be negative.

If the P/E Paid for a Target Company Is Greater