Use the Following Information to Answer the Question(s)below

question 54

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal has earnings per share of $2.It has 10 million shares outstanding and is trading at $20 per share.Rearden Metal is thinking of buying Associated Steel,which has earnings per share of $1.25,4 million shares outstanding,and a price per share of $15.Rearden Metal will pay for Associated Steel by issuing new shares.There are no expected synergies from the transaction.
-If Rearden pays no premium to buy Associated Steel,then Rearden's price-earnings ratio after the merger will be closest to:

• A)10.0.
• B)10.42.
• C)12.0.
• D)7.8.

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