Consider the following premerger information about Firm A and Firm B:

	Firm A			Firm B
Total earnings	$	1,700		$	600
Shares outstanding		1,000			200
Price per share	$	31		$	35

Assume that Firm A acquires Firm B via an exchange of stock at a price of $37 for each share of B's stock. Both A and B have no debt outstanding.

a.	What will the earnings per share (EPS) of Firm A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

EPS

$

b.	What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Price per share

$

c.	What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Price-earnings

times

d-1	If there are no synergy gains, what will the share price of A be after the merger? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Price per share

$

d-2	What will the price-earnings ratio be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Price-earnings

times

d-3

What does your answer for the share price tell you about the amount A bid for B? Was it too high? Too low?

	Too high
	Too low