Earnings per Share. Shim Company wishes to acquire Siegel Company by exchanging 0.8 share of its stock for each share of Siegel. Financial data follow:
Shim
Siegel
Net income
$200000
$40000
Shares outstanding
50000
20000
Earnings per share
$4
$2
Market price
$40
$16
P/E ratio
10
8
Shim issues its shares to make the acquisition. (a) How many shares must Shim issue in the acquisition? (b) Assuming the net income of each firm remains
the same what is the earnings per share after the acquisition? (c) What is the amount earned per share on the original shares of Siegel stock? (d ) What
is the amount earned per share on the original shares of Shim stock?