Companies a and B Are Valued as Follows: Company

question 29

Multiple Choice

Companies A and B are valued as follows: Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2500 shares of A outstanding) . If investors are aware that there are no economic gains from the merger, what is the price-earnings ratio of A's stock after the merger?

• A) 7.5
• B) 8.3
• C) 10.0
• D) 5.0

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Definitions:

Altruism

Selfless concern for the well-being of others, often leading to actions benefitting someone other than oneself.

Equity

The principle of fairness or justice in the way people are treated, including the distribution of resources or treatment based on needs and merits.

Over Benefited

A condition in which an individual perceives receiving more from a relationship or exchange than they contribute to it.

Under Benefited

A feeling or situation where an individual perceives they are receiving less reward than they deserve compared to others.