Prior to the Merger, Firm a Has $1,250 in Total

question 84

Multiple Choice

Prior to the merger, Firm A has $1,250 in total earnings with 750 shares outstanding at a market price per share of $42. Firm B has $740 in total earnings with 220 shares outstanding at $18 per share. Assume Firm A acquires Firm B via an exchange of stock at a price of $20 for each share of B's stock. Both A and B have no debt outstanding. What will the earnings per share of Firm A be after the merger?

• A) $2.10
• B) $1.86
• C) $1.95
• D) $2.02
• E) $2.33

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Definitions:

Goods Available for Sale

The total quantity of goods that a company has on hand and can sell at any given time, including both finished goods and those still in production.

FIFO Earnings

Earnings calculated based on the "First In, First Out" inventory method, where the costs of the oldest inventory items are used first in determining profit.

Inventory Holding Gain

The increase in value of inventory held by a company, often due to price increases in the market rather than sales.

Dollar-Value LIFO

An inventory valuation method that uses the last-in, first-out (LIFO) cost flow assumption but measures those costs in dollar values, rather than in physical units, to account for inflation or deflation.