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

question 46

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 Rearden immediately after the announcement will be closest to:

• A)$15.00.
• B)$17.20.
• C)$18.60.
• D)$19.10.

---

Definitions:

Budget Line

A graphical representation of all possible combinations of two goods that an individual can afford given their income and the prices of the goods.

Indifference Curve

A graph that shows different combinations of two goods or services among which a consumer is indifferent, illustrating preferences and trade-offs.

Total Utility

The total satisfaction received from consuming a certain amount of goods or services.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another good, while keeping overall utility constant.