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Question - effects of a stock exchange what will the

Question - Effects of a Stock Exchange

Consider the following premerger information about firm A and Firm B:

	FIRM A	FIRM B
Total earnings	$2,400	$1,100
Shares outstanding	1,300	750
Price per share	$38	$17

Assume that Firm A acquires Firm B via an exchange of stock at a price of $19 for each share of B's stock. Both A and B have no debt outstanding.

Required - What will the price-earnings ratio of the postmerger firm be if the market correctly analyzes the transaction?

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