Consider Two Firms,Bob Company and Cat Enterprises,both with Earnings of $10

question 65

Multiple Choice

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.What is the change in Bob's earnings per share as a result of the acquisition?

• A)$2.31
• B)-$3.85
• C)$10.00
• D)$0
• E)$5.00

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Definitions:

Psychiatry

A branch of medicine focused on the diagnosis, treatment, and prevention of mental, emotional, and behavioral disorders.

Psychology

The scientific study of the human mind and its functions, especially those affecting behavior.

Sigmund Freud

An Austrian neurologist and the founder of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Operant Conditioning

A training approach that modifies the strength of a behavior through the application of reinforcement or punishment.