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

question 28

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 Associated Steel immediately after the announcement will be closest to:

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

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Definitions:

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