The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here:

Jolie Pitt

Price-earnings ratio............13.5.......................21

Shares outstanding.............75,000............210,000

Earnings..........................$150,000........$810,000

Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.

a. What will the EPS of Pitt be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?

b. What must Pitt feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover.