World Inc is determined to report earnings per share of $2.67. It therefore acquires the W & A Company. You are given the following:

World Inc. W&A Merged Firm

Earnings per share $2.00 $2.50 $2.67

Price per share $40 $25 ?

Price-earnings ratio 20 10 ?

Number of shares 100 000 200 000 ?

Total earnings $200 000 $500 000 ?

Total market value $4million $5million ?

There are no gains from merging in exchange for W&A shares. World inc. issues just enough of its own shares to ensure its $2.67 earnings objective.

A. Calculate the following for the merged firm:

1)Price per share

2)Price-earnings ratio

3)Number of shares

4)Total earnings

5)Total market value

B. How many shares of World Inc are exchanged for each share of W & A?

C. What is the cost of the merger to World Inc.

D. What is the change in the total market value of the World inc shares that were outstanding before the merger?