400 Exercise Consider the following information for two all-equity firms, A and B: Firm A Firm B Total earnings $3,000 $1,100 Shares outstanding 600 Price per share $70 $15 Firm A is acquiring Firm B by exchanging 100 of its new shares for all the shares in B. 1. What is the cost of the merger if the merged firm is worth $63,000? (the number of shares of the merged firm is 600 + 100 =700 shares) 2. What will happen to the Merged Firm's Earning Per Share (EPS)? 3. What will happen to the Merged Firm's Price Earnings Ratio (PER)? Answers 1/ 2/ Value of Merged firm Earning Firm A # of share of Merged firm Earning Firm B Value of share of Merged Firm Total Earning # of Exchanged shares # of share of Merged firm Cost of the merger EPS 3/ Value of share of Merged Firm EPS PER