The following data concerning companies A and B are presented:
|
Company A
|
Company b
|
|
Net income
|
$35,000
|
$50,000
|
|
Shares outstanding
|
5,000
|
10,000
|
|
Earnings per share
|
$7.00
|
$5.00
|
|
P/E ratio
|
10
|
14
|
|
Market price
|
$70
|
$70
|
Company B is the acquiring company, exchanging its shares on a one-for-one basis for company A's shares. The exchange ratio is based on the market prices of company A and company B stock.
(a) What will earnings per share be subsequent to the merger?
(b) What is the change in earnings per share for the stockholders of companies A and B?