A Firm with a P/E Ratio of 25 Wants to Take

question 45

Multiple Choice

A firm with a P/E ratio of 25 wants to take over a firm that is half its size (in market capitalization) that has a P/E ratio of 40. What would be the P/E ratio of the merged firm?

• A)32.5
• B)28.6
• C)30.0
• D)31.4

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Definitions:

Financing Activities

Transactions and events that affect the long-term liabilities and equity of an organization, such as issuing stocks or bonds, and repaying bank loans.

Decrease

The act of becoming smaller or fewer in size, amount, intensity, or degree; a reduction in value or quantity.

Accounts Payable

This term refers to the amounts owed by a company to suppliers or creditors for goods and services received but not yet paid for.

Sale Of Machinery

The process of transferring ownership of a piece of industrial equipment or machinery from one entity to another, usually in exchange for money.