Use the Following Information to Answer the Question(s) Below

question 49

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction.
-If Rearden offers an exchange ratio such that,at current pre-announcement share prices for both firms,the offer represents a 20% premium to buy Associated Steel,then the price per share of the combined corporation after the merger will be closest to:

• A) $1.85
• B) $1.90
• C) $2.00
• D) $2.25

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Definitions:

Expenditures

Funds spent by a business in the pursuit of profit and other business activities, including operating and capital expenses.

Private Purpose Trust Fund

A fund typically used by governmental entities to report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.

Fiduciary Fund

A fund used to account for assets held by a government in a trustee or agency capacity for individuals, private organizations, or other governments.

Special Revenue Fund

A fund used by a government to account for revenue from specific sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.