Question

Consider two firms that both have the same earnings per share of $10.00. The first firm Barley Inc. is a mature company with few growth opportunities. It has 3 million common shares outstanding with a current market price per share of $30. The second firm Marvel Inc. is a younger company with more lucrative growth opportunities. Marvel has 6 million shares outstanding with a current market price per share of $40. Now assume that Marvel acquires Barley by using a share swap. There are no synergies as a result of the merger, so the takeover creates no additional value.

Question 44 What will Marvel’s earnings per share (EPS) be after the successful acquisition of Barley?

a) $9.11 b) $10.33 c) $10.91 d) $11.15 e) $11.65

Q45 What will Marvel’s price-earnings ratio (P/E ratio) be before and after the acquisition of Barley? a) 2.50 before and 1.78 after b) 3.75 before and 3.98 after c) 4.00 both before and after d) 4.00 before and 3.67 after e) 4.25 before and 5.33 after

Show work please

Answer 1