A Firm with a P/E Ratio of 15 Wants to Take

question 48

Multiple Choice

A firm with a P/E ratio of 15 wants to take over a firm that is 1/3 its size (in market capitalization) that has a P/E ratio of 20. What would be the P/E ratio of the merged firm?

• A)16.0
• B)16.7
• C)16.3
• D)17.5

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Definitions:

Cash Payment

A transaction where a payment is made using physical currency or through electronic funds transfer, directly settling an obligation.

Cash Account

An account that records cash transactions, including cash received and disbursed, maintained by a company to keep track of its liquid assets.

Recorded

This term signifies the process of documenting transactions and events in the accounting records of a business.

Major Account Groups

Categories used in accounting to organize and summarize financial transactions, including assets, liabilities, equity, revenue, and expenses.