-Assume Alpha Pays a 20% Premium for Beta in a 1,000,000

question 7

Multiple Choice

$\begin{array}{lrr}&\text {Alpha}&\text {Beta}\\ \text { Total earnings } & \$ 1,000,000 & \$ 600,000 \\\text { Number of shares outstanding } & 400,000 & 200,000 \\\text { Earnings per share } & \$ 2.50 & \$ 3.00 \\\text { Price/earnings } & 12 \mathrm{X} & 10 \mathrm{X} \\\text { Market price/share } & \$ 30.00 & \$ 30.00\end{array}$

-Assume Alpha pays a 20% premium for Beta in a pooling of interests' transaction. Calculate the post merger

• A) $2.50
• B) $3.00
• C) $3.50
• D) $4.00
• E)P.S. for Alpha.

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Definitions:

Financial Intermediary

An institution that acts as a middleman between savers and borrowers, such as a bank or investment firm.

Fund Manager

An individual responsible for making investment decisions for a portfolio of securities, implementing investment strategies for a mutual fund or institutional investor.

Shareholders

Individuals or entities that own shares in a corporation and therefore have an ownership interest in the company.

Privately-Held Firms

Businesses whose ownership is private, meaning their shares are not traded on public stock exchanges.