Item 4

Winterbourne is considering a takeover of Monkton Inc. Winterbourne has 30 million shares outstanding, which sell for $80 each. Monkton has 25 million shares outstanding, which sell for $40 each. Merger gains are estimated at $125 million.

If Winterbourne has a price-earnings ratio of 15 and Monkton has a P/E ratio of 10, 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 Winterbourne shares. Monkton will get one Winterbourne share for every two Monkton shares held. Assume that merged firm will have net earnings equivalent to the sum of each individual firm. (Do not round intermediate calculations. Round your answer to 2 decimal places.)