Companies A and T are valued as follows: Firm A Firm T

Price per share $100. $50.

Earnings per share $10 $10

P/E ratio ? ? Share outstanding 2000. 1000.

Total Value $ 200,000 $50,000

Company A now acquires T by offering one (new) share of A for every two shares of T (that is, after the merger, there are 500 shares of A outstanding). If investors are aware that there are no economic gains from the merger,

What is the price-earnings ratio of A's stock after the merger?

Now suppose that the merger really does increase the value of the combined firms by $20,000, What is the cost of the merger?