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Earnings Per Share | Accounting homework help

2 min read
Posted on 
April 12th, 2024
Home Homework Help Earnings Per Share | Accounting homework help

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?

 

Paula Company wants to acquire David Company. Relevant data follow:

Paula David
Net income $40,000 $25,000
Shares outstanding 20,000 5,000

Paula issues its shares to make the acquisition. The ratio of exchange is 2.5.

(a) What is the earnings per share of the merged company based on the original shares of each company?

(b) What is the earnings per share of Paula?

(c) What is the earnings per share of David?

 

Pharoah Company had a net income of $1,617,000 and paid dividends to common stockholders of $336,875 in 2022. The weighted average number of shares outstanding in 2022 was 468,930 shares. Pharoah Company common stock is selling for $50 per share on the NASDAQ.

Pharoah Company’s price-earnings ratio is:

a. 3.4 times.

b. 14.5 times.

c. 4.8 times.

d. 9.6 times.

If a firm has a P/E of 7, and its current price on the stock exchange is R2.10, what is the earnings yield of a single share?

A) 333.33%

B) 14.29%

C) 100%

D) 700%

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