(Answered) Question - effects of a stock exchangeconsider the

Accounting

Question - Effects of a Stock Exchange

Consider the following premerger information about firm A and Firm B:

	FIRM A	FIRM B
Total earnings	$2,400	$1,100
Shares outstanding	1,300	750
Price per share	$38	$17

Assume that Firm A acquires Firm B via an exchange of stock at a price of $19 for each share of B's stock. Both A and B have no debt outstanding.

Required -

a. What will the earnings per share, EPS, of Firm A be after the merger?

b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)?

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