An Increase in Earnings Per Share After a Merger May

question 65

Multiple Choice

An increase in earnings per share after a merger may not indicate increased value if the:

• A)Number of shares has increased
• B)Price of the acquirer's stock increases
• C)Price/earnings ratios were different in the pre-merger firms
• D)Firm's additional earnings are spent on legal expenses of the merger

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Definitions:

Future Value

The value of a current asset at a specified future date, based on an expected rate of growth or return.

Annuity Due

An annuity for which the payment is due immediately at the beginning of each period, rather than at the end.

Ordinary Annuities

Identical financial amounts distributed at the termination of back-to-back periods, within a set period.

Annuities Due

An annuity for which the payment is due at the beginning of each period instead of at the end, often used in lease agreements and insurance premiums.