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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