Consider the Following Premerger Information About Firm a and Firm

question 17

Multiple Choice

Consider the following premerger information about Firm A and Firm B: Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock. Both A and B have no debt outstanding. What will the earnings per share of Firm A be after the merger?

• A)$1.60
• B)$1.86
• C)$1.95
• D)$2.02
• E)$2.10

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Definitions:

Beta

A measure of a stock's volatility relative to the overall market, indicating its risk compared to the market average.

Risk-free Rate

The return on investment with no risk of financial loss, often represented by the yield on government securities.

CAPM

Capital Asset Pricing Model; a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Beta

A measure of a stock's volatility in relation to the overall market.