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Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.What is the change in Little's price-earnings ratio as a result of the acquisition?
Risk Aversion
A preference for avoiding risk, where individuals or entities prioritize certainty and are reluctant to engage in investments with uncertainty.
Expected Return
The anticipated value or profit from an investment over a given period of time.
Beta
Beta is a measure of a stock's volatility in relation to the overall market, indicating the level of risk associated with the stock’s price changes.
Portfolio
A compilation of investment vehicles including equities, fixed income securities, natural resources, currency, and cash equivalents, as well as closed-end funds and exchange traded funds (ETFs).
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