Earnings per share of the purchasing firm usually goes in which direction during a merger?
A) EPS will increase immediately if the purchased firm has a lower P/E ratio.
B) EPS will decrease immediately if the purchased firm has a lower P/E ratio.
C) EPS is not affected by the merger.
D) EPS will increase in the future if the purchased firm is less aggressive.

Question

Quizplus · Accepted Answer

Typically, when a firm with a lower P/E ratio is acquired, it means that the purchasing firm is paying less for each share of its earnings. This can lead to an immediate increase in earnings per share (EPS) for the purchasing firm. However, if the purchased firm is not profitable or has a negative P/E ratio, the effect on EPS may be negative. It's also important to note that other factors such as the cost of the merger and any dilution of shares can also affect EPS.

Earnings Per Share of the Purchasing Firm Usually Goes in Which