You are given information about two different companies prior to the merger Company X and Company Y. The total profits of Company X and Company Y are $3,150 and $1,000 respectively. The Company X has 1,500 shares outstanding whereas Company Y has just 300 shares outstanding. The price per share for Company X and Y is $43 and $47 respectively. Assume thatCompany X acquires Company Y via an exchange of stock at a price of $49 for each share of Ysstock. Both Company X and Y do not have debt outstanding.

1. Calculate the EPS of Company X after the merger?

2. If the market incorrectly analyzes this reported profits growth (meaning, the

   Price/earnings ratio does not change), what will Company Xs price per share be after

   the merger?

3. If the market correctly analyzes the transaction, what will be the Price/earnings ratio of

   the post-merger company?

If there are no synergy gains, what will be the share prices of X after the merger? What will be the Price/earnings ratio? What does your answer for the share price tell you about the amount X bid for Y? Was it too high or too low? Explain with justification.