You are told that company A has total earnings for the year 2020 of 5 Millions, a price per share of 20 and 1 Million shares outstanding.

Company A would like to acquire company B, that has total earnings for year 2020 of 2 Millions, a price per share of 10 and 0.3 Million

shares outstanding. The proposal for acquisition is done via an exchange of stock at a price of 20 per share for the stocks of company B.

None of the companies has outstanding debt.

a)What are the EPS of company A after the merger?

b)What will be the new price per share for company A if the priceearnings ratio does not change?

c) If there are no synergy gains, what will the share price of A be after the merger? What will the priceearnings ratio be?