The firm A has earnings per share of $5 and 2 million shares, and the price of its stock is $44.

Firm A is thinking of buying firm B, which has earnings per share of $3 and 2 million shares, and the price of its stock is $22.

Firm A is going to issue new shares to buy firm B.

a/ If there is no synergy from this transaction, what is the new earnings per share after the merger if firm A paid the stocks of firm B at $22 when using stock-to-stock offer to buy the firm?

b/ If firm A pays a premium of 10% when buying stocks of firm B, what will be the new earning per share after the merger?

c/ What will be the P/E ratio after the transaction in a/? How does it compare with the P/E ratios of the two firms before the merger?

d/ If the projected synergy is $3 million, how many shares will firm A be ready to issue to buy firm B?