Use the Information for the Question(s)below

question 30

Essay

Use the information for the question(s)below.
Martin Manufacturing has earnings per share (EPS)of $3.00,5 million shares outstanding,and a share price of $32.Martin is considering buying Luther Industries,which has earnings per share of $2.50,2 million shares outstanding,and a share price of $20.Martin will pay for Luther by issuing new shares.There are no expected synergies from the transaction.
-Assume that Martin pays no premium to acquire Luther.Calculate Martin's price-earnings (P/E)ratio both pre- and post-merger.

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Definitions:

Externality

A cost or benefit from production or consumption that accrues to someone other than the immediate buyers and sellers of the product being produced or consumed (see negative externality and positive externality).

Third Party

An individual or group besides the two primarily involved in a transaction or legal matter, sometimes involved as an intermediary or independent party.

Transaction

An exchange or transfer of goods, services, or funds between two or more parties.

Deadweight Losses

Efficiency losses in an economy occurring when total societal welfare is not maximized, typically as a result of market distortions like taxes or subsidies.