Stephanie Anderson

Chapter 12:

1. Price/earnings ratio

Company A is merging with Company B. Company A has a price/earnings ratio of 30 and Company B has a price/earnings ratio of 35. If Company A accounts for 65% of the merged firm, what is the expected price/earnings ratio of the newly merged firm?

P/E=(w1)(P1/E1)+(w2)(P2/E2)

P/E=(.65)(30)+(.35)(35)

P/E=31.75