World Enterprises is determined to report earnings next year of $2.67 per share. It therefore acquires Wheelrim and Axle Company. You are given the following facts:

World Enterprises Wheelrim and Axle Merged Firm

Earnings per share $2.00 $2.50 $2.67

Price per share $40.00 $25 ?

Price-earnings ratio 20 10 ?

Number of shares 100,000 200,000 ?

Total earnings $200,000 $500,000 ?

Total market value $4,000,000 $5,000,000 ?

There are no synergy gains from merging. In exchange for all of the Wheelrim and Axle shares, World Enterprises provides Wheelrim and Axle shareholders with just enough new World Enterprises shares to assure the $2.67 earnings per share objective.

(a) Complete the above table for the merged firm.

(b) How many shares of World Enterprises are exchanged for each share of Wheelrim and Axle?

(c) What is the cost of this merger to World Enterprises?

(d) What is the change in the total market value of the World Enterprises shares that were outstanding before the merger?