Consider Two Firms,Bob Company and Cat Enterprises,both with Earnings of $10

question 48

Multiple Choice

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.What is the change in Bob's price-earnings ratio as a result of the acquisition?

• A)0
• B)-2
• C)4
• D)-0.75
• E)1.25

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Definitions:

Subliminal Stimulation

The process of influencing someone's thoughts or behaviors by exposing them to stimuli below the threshold of conscious awareness.

Psychokinesis

The supposed ability to move or manipulate objects with the mind without physical interaction.

Subliminal Perception

The process by which stimuli are presented below the threshold of conscious awareness but still influence thoughts, feelings, or actions.

Acupuncture

Use of pins to diminish pain, possible because of stimulation of release of endorphins and cortisol.