Consider Two Firms,Left Company and Right Enterprises,both with Earnings of $2.50

question 34

Multiple Choice

Consider two firms,Left Company and Right Enterprises,both with earnings of $2.50 per share and 15 million shares outstanding.Left is a mature company with few growth opportunities and a stock price of $7 per share.Right is a new firm with much higher growth opportunities and a stock price of $16 per share.Assume Right acquires Left using its own stock and the takeover adds no value.What is the change in Right's price-earnings ratio as a result of the acquisition?

• A)0
• B)3.0
• C)-3.2
• D)-3.6
• E)-1.8

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