King Enterprise is preparing for a takeover of Wayne Enterprise. King Enterprise has 10 million shares outstanding. Its shares are currently trading at $25, with earnings per share at $3. Wayne Enterprise has 15 million shares outstanding and are currently trading at $15, with earnings per share of $1.50. King Enterprise intends to pay for this takeover by issuing new shares. There are no expected synergies from the transactions.

a) What will be King Enterprise's earnings per share after the takeover? Assume no premiums are paid.

(4 marks)

b) Suppose King Enterprise offers an exchange ratio with a 20% premium on current pre-announcement share prices to buy Wayne Enterprise. What will be King Enterprise's earnings per share after the takeover?

(4 marks)

c) What explains the change in earnings per share seen in part (a) and (b)? Are King Enterprise's shareholders any better or worse off? Explain your answer. (6 marks)

d) What will be King Enterprise's price-earnings ratio after the merger (if no premium is paid)? How does this compare to its P/E ratio before the merger? How does this compare to Wayne Enterprise's pre-merger P/E ratio? How does this affect the shareholders of both companies? Explain your answer.