Acquiring Corp. is considering a takeover of Takeover Target Inc. Acquiring has 10 million shares outstanding, which sell for $40 each. Takeover Target has 5 million shares outstanding, which sell for $20 each. Merger gains are estimated at $25 million.

If Acquiring Corp. has a price-earnings ratio of 12 and Takeover Target has a P/E ratio of 8, what should be the P/E ratio of the merged firm? Assume in this case that the merger is financed by an issue of new Acquiring Corp. shares. Takeover Target will get one Acquiring share for every two Takeover Target shares held.

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Acquiring Co No. of outstanding shares Seling pri Price-earning ratio 10.00 million ce per share S 40.00 12.00 Takeover Target Inc No. of outstanding shares Selling price Price-earning ratio 5.00 million per share S 20.00 8.00 Estimated merger gains No. of shares bein S 25.00 millon 2.00